United Expects Friday To Be The Day

[ivauir]

Good luck guys - its not going to be easy on any of us...

 

[ualdriver]

Stick your head back in the sand. Yeah, it's just me or you could actually read the WSJ, USA Today(I have already posted) and the below Forbes article. Or any of the countless others.

Actually, if you depend on those types of publications to derive all of your financial understanding of a company, I would actually say that you have your head in the sand. Publications such as those are written by authors who may or may not have a deep understanding of the airline industry. And even if they did, they could just as easily be right as wrong. Even the expert "analysts" don't get it right all the time. Aren't we on Holly's "Titanic Watch?" Didn't Boyd say Ted would be a failure? (hint: it's not) If analysts were never wrong, one could buy and sell on their advice every time a word exited their mouth or their keyboard and become billionaires because, long term, they'd always be correct. If you really, really believe what your are posting, I suggest on February 1st (or thereabouts) when UAL stock comes available for trading on the NASDAQ, that you sell everything you have and SHORT THE HE11 out of UAUA stock. After all, if oil is at over $50bbl as you say (of course that one metric assumes we're doomed, right?) the stock, long term, has nowhere to go but down. You're going to be sooo rich and sooo smart.


When do Airlines report profits? After the summer. Not after the winter. So do any of you financial geniuses have a good reason why UAL mgt has decided to exit ch11 now and not wait a couple of months?

Yeah, I do. Because operating under bankruptcy protection is very restrictive. Simply stated, it doesn't allow management to freely operate the company as they desire. So by your logic, if one wants to take advantage of the up and coming summer months and have free reign to position his company so that profit may be maximized during those months, wouldn't it stand to reason that a company such as UAL would want to exit BEFORE the summer season? Not that I agree with why that's why we will exit in February, but I'm just using your convoluted logic.


I am sure that it has nothing to do with the fact that AMR and CAL have almost doubled over the past 9 months. How are they paid stock options. They want $15 a share. They weren't going to get it 6-9 months ago when AMR and CAL were selling at $11. Now that AMR and CAL are in the $18-22 range, $15 seems reasonable for UAL. Who cares if the company is not ready or the fact that you could lose $7+ billion in tax credits. They want to get theirs before the higher oil prices bring the airline stocks back to reality

The above just doesn't make sense. You're assuming that there's a dollar to dollar relationship between different stock prices of different companies. The trading range of any other airline's stock is COMPLETELY irrevelant as to what UAL's stock price will trade it. Now, UAL might change the amount of shares issued when they exit so that the stock price falls within a certain range initially (i.e. not trading at $1000/share nor $1/share) but you can't determine what share price will be "reasonable" for a company just because its competitors share price fall within some arbitrary range.


UAL Bankruptcy Breakdown
Mark Tatge, 09.07.05, 6:30 PM ET
CHICAGO - United Airlines parent UAL (otc: UALAQ - news - people ) will leave bankruptcy a smaller airline, heavily leveraged, and should lose $250 million next year, according to a Forbes.com analysis of the documents filed Wednesday with the federal bankruptcy court...........

Fuel. United uses $45 to $50 per barrel crude oil to forecast profits through 2010, or about $1.55 for a gallon of jet fuel.

But prices should remain above $60 for West Texas Intermediate at least through 2007, says Vaughn Cordle, chief analyst with Airline Forecasts, an economic forecasting firm.

Jet fuel should run $1.89 per gallon next year, or 34 cents more per gallon than what United forecasts. At 2.2 billion gallons annually, that comes to an additional $748 million for fuel.

Revenue. Next year, United forecasts 2.6% growth in core passenger revenue per available seat mile, or about half 2005’s increase. Much of the growth has come from shifting traffic overseas.

United, however, forecasts its fuel bill to be $3.4 billion, falling from this year’s $3.75 billion. (RED FLAG HELLO!)

But that presumes a moderation in fuel prices. If fuel prices don’t drop, they could jeopardize United’s ability to repay its debt, forcing yet another restructuring.

The UAL Corporate Restructuring Information documents can be viewed at http://www.pd-ual.com/.

That's great that you hinge much of your opinion on a Forbes article (what, no USA today quote?), and I guess the above is an opinion just like anything else. But how about the opinion of the banks that will lend UAL 3B? They're under no obligation to lend us anything. Do you think that maybe, just maybe, they know that oil is trading at above $50bbl and still they feel UAL will be able to meet its future obligations? Do you think they know anything?

Do you think that $2.00 (for example) Jet fuel prices only affect UAL? You love to harp on high oil prices and the fact that UAL's exit business plan was based at around $50. Do you think that maybe, just maybe, if Jet A prices stay that high that other things might happen within the industry? Do you think that perhaps, maybe, airfares might rise just a little bit like they did a few days ago? Do you think that the NWA and DAL bankruptcy might result in some seats temporarily (or longer) leaving the market? Do you think that maybe, just maybe, we might see an uptick in average unit revenue across the industry as airlines try to recover some, if not all, of those higher fuel costs? Do you think that maybe UAL has money budgeted in that bankruptcy exit plan to hedge some portion of their fuel needs against higher fuel costs? Do you think that when even JetBlue, with some of the lowest unit costs in the industry, starts to lose money that perhaps airfares might rise a bit and airlines will raise prices to cover their costs? Do you think the moment average crude oil prices rise one penny above $50bbl that UAL starts to immediately become unprofitable on a net and/or operating basis? (hint: it doesn't) Do you see where I'm going with this? Maybe there are other things influencing UAL's future other than $50bbl oil?

The bottom line is that I know it's really cool and in vogue on these aviation forums to proclaim that UAL's business plan called for oil at $50bbl, oil is at XXbbl (insert a number higher than 50 in the XX's) and therefore, UAL is doomed. What I'm trying to explain you is that, first of all, oil prices are only one piece of the total airline survival puzzle. Second of all, your own Forbes article states that UAL has a cost advantage over its rivals. If the airline industry does raise airfares to cover its costs (talking in broad, general terms), using this Forbes article as my guide as you did, which airlines do you think will be the MOST profitable? Perhaps the ones with the largest cost advantages over its rivals? If the airline industry does not cover its costs to account for higher fuel prices (which it cannot do forever and I think forever is starting to come to a close), which airlines will lose the most money? UAL? Or the ones that Forbes says aren't as cost efficient as UAL? Who's in the most trouble then?

Yep it's just me.....

Frankly, many people (including me) expected us to be dead already- but we're not. I could probably line up 10 analysts who say UAL is going to die. I could line up 10 analysts who say UAL is going to thrive. Who's right? Like I said before, if you're as confident as imply you are that UAL is going to lose big, I suggest you start shorting UAUA right away. You're going to be rich!

 

[G4G5]

That's great that you hinge much of your opinion on a Forbes article (what, no USA today quote?), and I guess the above is an opinion just like anything else. But how about the opinion of the banks that will lend UAL 3B? They're under no obligation to lend us anything. Do you think that maybe, just maybe, they know that oil is trading at above $50bbl and still they feel UAL will be able to meet its future obligations? Do you think they know anything?

You are really missing the boat. Banks lend money to bankrupt airlines, based upon the assets they have to use as collateral. No assets, no money. Or do you actually think that Citigroup just offered up the exit financing, with no protection? Could it be that UAL mgt had to put up substantial assets (like the Pacific routes) in order to get the exit financing. Hence the term, secured creditor.

Now what type of interest rate do you think UAL will get? Not a very good one. The interest rates supplied by the secured creditors (Citi) to UAL, are a VARIABLE rate. The rate is dependent upon the companies bond rating. Who sets the bond rating, Moody's and Standard & Poors. This is what S&P, chief airline analyst had to say about UAL on Friday:
"Baggaley of Standard & Poor's worries about the United balance sheet. United is leaving bankruptcy with more than $17 billion in debt, even after chopping away $8 billion in Chapter 11. That leaves the carrier highly leveraged compared with most companies.
United projects it will break even or turn a profit in 2006, but Baggaley forecasts a modest loss. United's business plan assumes $50-a-barrel oil prices, on average, ahead. S&P, by contrast, predicts $60 a barrel this year and $55 a barrel next year"

What does that tell you about UAL's future bond rating? Remember Bond rating = interest rate. Not a pretty picture.
I can get any bank to loan me money if I have the assets and am willing to pay a crazy interest rate. Yeah they know something, if UAL can't pay they can take the assets and sell them to the highest bidders. Not a bad deal if you are Citibank.

Do you think that $2.00 (for example) Jet fuel prices only affect UAL? You love to harp on high oil prices and the fact that UAL's exit business plan was based at around $50. Do you think that maybe, just maybe, if Jet A prices stay that high that other things might happen within the industry? Do you think that perhaps, maybe, airfares might rise just a little bit like they did a few days ago? Do you think that the NWA and DAL bankruptcy might result in some seats temporarily (or longer) leaving the market? Do you think that maybe, just maybe, we might see an uptick in average unit revenue across the industry as airlines try to recover some, if not all, of those higher fuel costs? Do you think that maybe UAL has money budgeted in that bankruptcy exit plan to hedge some portion of their fuel needs against higher fuel costs? Do you think that when even JetBlue, with some of the lowest unit costs in the industry, starts to lose money that perhaps airfares might rise a bit and airlines will raise prices to cover their costs? Do you think the moment average crude oil prices rise one penny above $50bbl that UAL starts to immediately become unprofitable on a net and/or operating basis? (hint: it doesn't) Do you see where I'm going with this? Maybe there are other things influencing UAL's future other than $50bbl oil?

In case you haven't checked oil is well above $50 a barrel and Jetblue is losing money. Yet ticket prices have not been going up. Why is that?

What is SWA's price per barrel of oil in 2006 and 2007? 65 percent for 2006 at approximately $32 per barrel, over 45 percent for 2007 at $31 a barrel. SWA is in the position to control the pricing market.

If they can make money at current rates and help put the competition out of business, why raise rates? So that the competition can make money too? Get real, SWA know's this why do you think they picked DEN to expand into?

What about NWA, UAL's chief Pacific competitor? What is going to happen their costs? They now have your target number to work from. Do you actually think that NWA's will be higher then yours or do you think that they will reorganize while in CH11 to achieve lower costs?
At $68 a barrel UAL is losing money, why exit Ch11 now?


The bottom line is that I know it's really cool and in vogue on these aviation forums to proclaim that UAL's business plan called for oil at $50bbl, oil is at XXbbl (insert a number higher than 50 in the XX's) and therefore, UAL is doomed. What I'm trying to explain you is that, first of all, oil prices are only one piece of the total airline survival puzzle. Second of all, your own Forbes article states that UAL has a cost advantage over its rivals. If the airline industry does raise airfares to cover its costs (talking in broad, general terms), using this Forbes article as my guide as you did, which airlines do you think will be the MOST profitable? Perhaps the ones with the largest cost advantages over its rivals? If the airline industry does not cover its costs to account for higher fuel prices (which it cannot do forever and I think forever is starting to come to a close), which airlines will lose the most money? UAL? Or the ones that Forbes says aren't as cost efficient as UAL? Who's in the most trouble then?

Ok, so you read that article and came out feeling that it was pro UAL? Re-read it.

Yep it's just me.....

Frankly, many people (including me) expected us to be dead already- but we're not. I could probably line up 10 analysts who say UAL is going to die. I could line up 10 analysts who say UAL is going to thrive. Who's right? Like I said before, if you're as confident as imply you are that UAL is going to lose big, I suggest you start shorting UAUA right away. You're going to be rich!

I never put money into airline stocks, their is always a better place. Good luck

 

[acroflyr]

I never put money into airline stocks, their is always a better place. Good luck

Really? I would have loved to have more of my money in LUV or SKYW the last 10 years! I would have made allot more than I already have.

 

[C54Capt]

I look forward to helping UAL put the hurt on a few airlines that did us quite a bit of damage post-911. Off the top of my head, there's one that flies around with animals on their tails which did a huge expansion following 911 which coincided with UAL's drawdown in that snowy hub city. That was followed by them getting a few of UAL's gates, albeit only for a few years. I'm glad to see that we'll be assisted by another airline that just started service to that hub..

Andy,
You sound like a real class act. You bash people for wishing the demise of United and then you turn around and wish ill-will toward one of UAL's smallest competitors and the people there-in. There are no positive attributes to hypocracy.

 

[WhiteCloud]

Andy,
You sound like a real class act. You bash people for wishing the demise of United and then you turn around and wish ill-will toward one of UAL's smallest competitors and the people there-in. There are no positive attributes to hypocracy.

Good first post. That theme has been prevalent among a bunch of those who claim to be UAL pilots here. UAL is struggling everywhere including their own home town. Guess that's Frontier's fault?

 

[ualdriver]

You are really missing the boat. Banks lend money to bankrupt airlines..... Could it be that UAL mgt had to put up substantial assets (like the Pacific routes) in order to get the exit financing. Hence the term, secured creditor.

Actually, not missing the boat at all. Banks lend money to ANYONE based upon assets they use as collateral. Sometimes they'll make unsecrured credit available. What makes airlines any different than anyone else? What's your point? UAL is NO DIFFERENT than anyone in our industry, therefore no worse off. Perhaps better off according to your Forbes article. But banks AREN'T going to loan money who they don't feel are viable, long term, and put their capital at risk.

Now what type of interest rate do you think UAL will get? Not a very good one. The interest rates supplied by the secured creditors (Citi) to UAL, are a VARIABLE rate. The rate is dependent upon the companies bond rating. Who sets the bond rating, Moody's and Standard & Poors. This is what S&P, chief airline analyst had to say about UAL on Friday:
"Baggaley of Standard & Poor's worries about the United balance sheet...... That leaves the carrier highly leveraged compared with most companies.....United projects it will break even or turn a profit in 2006, but Baggaley forecasts a modest loss. United's business plan assumes $50-a-barrel oil prices, on average, ahead. S&P, by contrast, predicts $60 a barrel this year and $55 a barrel next year"


This is the same Standard and Poor's that just gave us a B+ credit rating with a recovery rating of 1, the highest possible recovery rating? You mean that Standard and Poor's, right?

As for your other statements, airlines are typically MUCH higher leveraged than most companies (i.e. non-airline companies). Do you think it is ANY different for any other airline except Southwest? Check out ANY airline's balance sheet (go to the investor relations section of any airline's website and read the SEC filings- in particular read the airline's Condensed Statements of Consolidated Financial Position found in 8K's and 10Q's). See how much debt EVERYONE ELSE is carrying compared to a post bankruptcy UAL.

But you're arguing how doomed UAL is. Is it debt and fuel costs now? Or just fuel? Well, a post bankruptcy UAL will be carrying LESS debt than its legacy competitors. Less debt. So if you're argument is debt=bad....UAL has debt.....therefore UAL=screwed, then I would argue that since UAL will have less debt than its competitors, I would imagine that our competitors must be REALLY screwed, right? Funny how you failed to mention that.

Here's some more news for you there, G4G5. UAL's in big trouble according to you, but when we made an offering to the open market it was oversubscribed:

http://biz.yahoo.com/prnews/060124/cgtu022.html?.v=38

"Separately, United announced that it received offers of subscription for more than twice the capital necessary to support the $3 billion in exit financing that it sought, which consists of a $2.8 billion term loan and a $200 million revolving credit line. Because of this response, terms of the financing improved to reduce the financing cost of the facility by 75 basis points to 375 basis points over the London interbank offered rate (LIBOR).

What does that tell you about UAL's future bond rating? Remember Bond rating = interest rate. Not a pretty picture.....Yeah they know something, if UAL can't pay they can take the assets and sell them to the highest bidders. Not a bad deal if you are Citibank.

Please read the above article about how original interest rates have now been lowered. That's what it tells me about UAL's future "bond ratings." Looks like our interest rate has been lowered once already, and we haven't even exited bankruptcy yet.


In case you haven't checked oil is well above $50 a barrel and Jetblue is losing money. Yet ticket prices have not been going up. Why is that?

Uh, yeah, thanks for letting me know that oil is above $50bbl. I had no idea.


Actually ticket prices are going up. In fact, a $10 round trip fare increase just went in a few days ago in most domestic markets. Fares went up about a dozen times last year alone. Google it if you don't believe me (hint: use google news, type in "airline fare increase," fourth article down among may others). More price increases will follow in my opinion if the price of Jet A continues to rise using last year as my reference.

What is SWA's price per barrel of oil in 2006 and 2007? 65 percent for 2006 at approximately $32 per barrel, over 45 percent for 2007 at $31 a barrel. SWA is in the position to control the pricing market.

So I guess UAL again is the only airline that this affects? We should just fold up our tent and go home? Or perhaps this is a problem that every major airline is going to have to deal with? Again, you single out UAL. I'm saying it's everyone's problem and UAL is probably the best positioned in the industry to deal with it.

If they can make money at current rates and help put the competition out of business, why raise rates? So that the competition can make money too? Get real, SWA know's this why do you think they picked DEN to expand into?

What about NWA, UAL's chief Pacific competitor? What is going to happen their costs? They now have your target number to work from. Do you actually think that NWA's will be higher then yours or do you think that they will reorganize while in CH11 to achieve lower costs?

I think they picked DEN to expand into because it was a pretty big hole in their network. It's kind of hard to ignore an airport that serves four million people for very long, especially when the remaining cities that you aren't flying into already probably are less attractive. If SWA had intended to go at our jugular like you imply, they would have done it when we were really on the ropes, not now. And we already had low cost competition in Denver with Frontier. I doubt SWA's presence will drag yields down any lower in DEN then they were already but that remains to be seen. I think SWA is a bigger problem for Frontier than us, quite frankly, in DEN.

As SWA hedges begin to expire, their costs are going to rise and they're going to have to start raising their fares to cover those costs or lose money. Yup, they have plenty of contracts in place now to cover a good portion of their future fuel needs, but over time, their fares will have to increase or they're going to lose money. But despite the fact that airlines like SWA were keeping fares low, we have been cash flow positive for several months now. Yes, that doesn't cover non-cash items like depreciation that eventually have to be accounted for but over time, I think fare increases will cover these expenses. And if fuel goes down long term, all the better for UAL. Per your article, S&P predicts $55bbl in 2007 (a worthless prediction but you posted it). Guess who's making a NET profit if that prediction comes true? We are.

As far as NWA goes, they have to exit bankruptcy first. In case you didn't notice, management is really shooting for the moon with those guys (in particular their pilots and flight attendants) and I suspect it isn't going to fly with those remaining unions unless management backs off substantially. When/if they exit bankruptcy, we'll have to see what their costs look like and go from there. They may or may not obtain a cost advantage relative to us, and we'll have to see what happens to their yields relative to their costs when the whole industry shakes out. Until then, not concerned yet.

At $68 a barrel UAL is losing money, why exit Ch11 now?

The "why exit now" suppostition was partially explained to you already. The rest of the explanation is that UAL has accomplished (for better or worse) everything they hoped to accomplish, and the protections of bankruptcy are no longer needed nor will provide much benefit now, no matter what oil prices are. There are expenses (both real expenses....have you seen the legal fees.....and imagined...i.e. "I'm not buying a ticket on a bankrupt carrier" etc., etc.) that UAL incurs while operating in bankruptcy that outweigh any further savings that can be "wrung out" while operating under the protection of the courts.

In conclusion, for whatever reason, you don't like UAL and its outlooks for the future, and that's fine. However, the reasons you state for its failue (fuel first, now debt) are the same issues that EVERYONE else in the industry is going to have to deal with. They're not happening in a vacuum only at UAL. UAL pays high fuel prices, so does AMR, JetBlue, NWA, etc. UAL carries a high debt load relative to revenue (or whatever metric you want to use), so does AMR, JetBlue, NWA, etc. From everything financial I've seen from UAL so far, they are in the BEST position right now to deal with anything- whether it's fuel prices or a terroist attack.

That having been said, I wouldn't put one thin dime of my own money into any airline. In fact, I sold my claim to UAL stock last week at a premium to the 6 to 8 cents on the dollar UAL will be paying its claims. Yet another indication of what the market thinks of UAL's future.

 

[WatchYourElbows]

Struggling???? I think not. United is coming out of bankruptcy strong and ready to kick butt. Don't believe me? Watch us.

 

[Dennis Miller]

Struggling???? I think not. United is coming out of bankruptcy strong and ready to kick butt. Don't believe me? Watch us.

You can thank the pilots, you broads kept trying to mess it up. How many quit over the new work rules? Thought so. It would be nice if they could start replacing some of you Wright Brother groupies with someone that won't turn a passenger to stone. Good luck, to the pilots that is.

 

[WhiteCloud]

Struggling???? I think not. United is coming out of bankruptcy strong and ready to kick butt. Don't believe me? Watch us.

Well.....the only butts you've been kicking so far are the ones of your employees and contractors. Without the protection of bankruptcy UAL is going to be like a one legged man in an ass kicking contest. It'll be fun.