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United Takes $1 Billion From Revolving Credit Facility, While Employee Exits Could Cost $300 Million

United Takes $1 Billion From Revolving Credit Facility, While Employee Exits Could Cost $300 Million
Joe Cortez

United Airlines is sharing more information about their plans to lay off employees and continue to stay afloat during the COVID-19 pandemic. In a regulatory filing, the carrier says layoffs could go through the end of the year, while separation costs for the second quarter of 2020 are estimated around $300 million.

United Airlines could spend around $300 million in payoffs to employees willingly leaving the airline, while more are expected to be laid off starting in October 2020. The new numbers were discovered in an 8-K filing with the U.S. Securities and Exchange Commission.

COVID-19 is “An Act of Nature” Necessitating Voluntary Exits and Furloughs

Earlier this week, around 36,000 United employees were given potential furlough notices directly or through their labor unions, as required by the Worker Adjustment and Retraining Notification Act (WARN). In their latest filing, the airline now says that the notices were given as part of a “strategic realignment of its business and new organizational structure as a result of the impacts of the COVID-19 pandemic.”

As an attempt to reduce the number of job reductions, United has reportedly offered incentives to employees accepting voluntary buyouts. In total, giving departed employees flight benefits, continued health insurance and health care credits could cost the airline around $300 million. Of that, $50 million is expected in cash costs.

Even with voluntary exits, the airline anticipates they will have to furlough employees starting on Oct. 1, 2020 – the first date allowable by the CARES Act. The furloughs are expected to continue throughout the end of the year. The airline has not disclosed how many workers could potentially be displaced.

“The COVID-19 pandemic is an act of nature and is a circumstance beyond the Company’s control, which is further compounded by governmental restrictions on travel and stay-at-home orders that have substantially reduced bookings and the demand for airline travel,” the airline writes in their 8-K filing. “Resulting in the temporary grounding of a substantial number of the Company’s aircraft.”

United Takes $1 Billion From Revolving Credit Facility

The $300 million in exit costs isn’t the only money move United is taking. On July 2, 2020, the airline borrowed $1 billion from their revolving credit facility, and plans on using it for “general corporate purposes.” The credit line comes from a 2017 Credit Agreement with JPMorgan Chase Bank as the agent. Guaranteeing the credit line are United’s route authorities on certain international flights, including those to “China, Hong Kong, England and Japan.”

The move comes as analysts grow concerned over United’s long-term strategy. In an analysis for Seeking Alpha, Bill Maurer writes United’s hardest days could be ahead.

“As coronavirus cases pass 3 million in the US this week and are not showing any signs of slowdown, US airlines could easily see another leg down,” writes Maurer. “With the company not expected currently to see even 73% of last year’s revenues next year, and cash burn continuing for quite a while, these shares could easily retest their lows if passenger traffic does not rebound substantially in the next few quarters.”

View Comments (3)

3 Comments

  1. jjonathan

    July 10, 2020 at 5:13 am

    Again, the GREAT (???) United/American only thinks of itself…. what a shock!

  2. mything3

    July 10, 2020 at 6:57 pm

    Ref Jonathan….this (UA) is a corporation fighting for it’s economic life, not an individual! If UA fails ALL 96000 employees suffer. Sounds like you’ve never had to make decisions on who stays and who leaves…I have and it’s no picnic.

  3. bigbuy

    July 14, 2020 at 3:33 am

    @Mything3
    I have made these decisions about employees also and your comment, while very true, is an understatement.

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