United To Lose $412 Million Due to Newark Changes

United Airlines planes are seen on platform at the Newark Liberty International Airport in New Jersey, July 8, 2015. United Airlines resumed flights at all U.S. airports on Wednesday after they were grounded due to computer issues, according to the Federal Aviation Administration. The FAA issued the order to prevent all United Airlines flights from taking off following a systemwide computer glitch, which was resolved, the agency said. REUTERS/Eduardo Munoz - RTX1JLIO

Charges come as slot control changes are announced for United’s East Coast hub.

United Airlines is set to take a $412 million hit due to a Federal Aviation Administration (FAA) change that devalues their slots at Newark Liberty Airport (EWR). In a press release, the airline announced they would absorb the one-time special charge on their second quarter earnings report.

The special charges come as the FAA changes their stance on landing and departure rights at EWR. In April, the administration announced the airport’s designation would change to a Level Two schedule-facilitated airport. As a result, the airport will move from a slot-controlled airport that currently allows 81 aircraft operations per hour to open up the airport to more carriers. New carriers who wish to operate at the airport must secure terminal space and gate space. Therefore, United has determined that their slots at EWR have lost nearly all of their original value.

“[United] has determined that the FAA’s action has impaired the entire value of its Newark slots,” the carrier wrote in a press release. “Because the slots will no longer be the mechanism that governs take-off and landing rights.”

The FAA shift has ramifications for both United and Delta Air Lines. The two carriers were expected to swap operations slots to consolidate their hub operations, but have since canceled the agreement after the FAA decision.

The write-off is expected to have a value of $264 million after income taxes. The carrier also disclosed that the slots were being used as collateral in multiple agreements with Chase Bank, including a credit and asset guaranty, as well as the co-branded card agreement. Their agreement has since been amended to remove the collateral requirement from the agreements.

United Continental Holdings, the parent company of United, will announce their second quarter profits on July 20, 2016.

[Photo: PBS]