bocastephen

Two of the largest investment banks on Wall Street only want the fees from the offering - they could care less on whose face the egg lands, provided it's not theirs and they collect their fees.

The MAX issue is only getting worse, and Coronavirus probably just put a stake in the MAX's heart - Boeing will never be able to climb out from under the financial catastrophe they will need to absorb from endless canceled orders and delivery refusals while those planes sit and rust.

Don't put your eggs in the vaccine - there is a flu vaccine, yet millions get the flu every year, even with the shot, and many pass away. As the Coronavirus waxes and wanes, comes and goes, vaccine or not, it will set off waves of panic for years to come that will quickly contract and expand consumer and business spending in its wake. Instability is the new normal, and a vaccine won't change anything.

Dieuwer

"...or how United is the epitome of bad management."


https://seekingalpha.com/pr/17844186...f-common-stock

First they BUY back shares for about $88 each and now they plan to SELL shares for about $26.
What IDIOT is running this company???

mahasamatman

One without a crystal ball? One who's trying to avoid bankruptcy? One who is forced to adapt to a situation beyond anything anyone alive has experienced?

WineCountryUA

Got a quick answer to pricing
Today's closing price was $27.88, a week ago $32, pre-COVID $88-92
Roughly $1B is fully subscribed

jsloan

UA has a history of labor troubles going back at least 40 years. I doubt that they've ever been "completely aligned" on anything.

That... isn't what happens in Chapter 11, although, yes, it does give UA an opening to renegotiate the contracts. They're not immediately cancelled, seniority isn't immediately gone. In Chapter 7, sure, because the company shuts down.

If this is true, then the current stock offering is the worst financial decision UA has made since at least 2001. That's really saying something.

At the risk of repeating myself, you'd have to be an idiot to issue new stock now unless you needed the money badly. If you project a $3BB free cash reserve in 6 months, you do not sell your stock when it's 70% off of the 52-week high in order to pick up $1BB more. Instead, you wait until October and sell when the stock is 3x what it is now -- because if they can navigate the waters as cleanly as you're projecting, their stock is a massive buy right now, not a sell. In fact, if your numbers were right, the board would be risking a shareholder lawsuit for breach of fiduciary duty by issuing new stock at this time.

You don't work in a unionized profession, do you?

It isn't that simple, because you're just assuming that they have no fixed costs beyond the ones that are being subsidized by the government, and then you're also assuming that if you go out of business for a year, when you come back, people will be like, "Oh, hi, United; I missed you! Please, take my money."

Here you are correct about Chapter 11, but I suspect you're being as unreasonably rosy about Boeing as you are about United. The military side of the operation has not been without its problems over the last few years, and Boeing Commercial Aircraft is a major part of the business that, in the space of two years, has gone from an order book that was the envy of everyone (except the A321 aficionados on this board) to a place where they have a massive inventory glut, the likelihood that their customers are going out of business, a giant used aircraft market about to come online, and zero demand for their products. I promise you that there is a management team somewhere at Boeing whose sole responsibility right now is figuring out how to work with their customers to get the MAX delivered and paid for.

Sure, on the very good theory that they can probably make some intraday profit buying below market and selling at market. It's not a bad idea for the bank; it's just a bad idea for the business. I promise you -- UA is dealing from a position of extreme weakness. "Buy high, sell low" is a strategy that gets the board removed and the CEO replaced. They're doing this because they have no choice.

Bear96

Remember what exactly??? How UA exited the last Ch. 11 with no CBAs and everyone started over with no seniority?

This isn't how any of this works . . . (And I lived through it as a union UA employee.)

fly18725

The equity offering was underwritten, meaning the banks committed to United that the shares would be sold at certain levels. Thus commitment was based on known demand, but still requires the banks to purchase the shares as a last resort. This is a meaningful positive indication of how the banks see United’s viability.

While the lower demand will almost certainly slow Boeing’s MAX deliveries, it doesn’t inhibit the return to service. The FAA is still working on it and I think if anything, there’s more political pressure. Boeing has zero MAX production right now, which puts them in a better place than Airbus.

And on the final pessimistic note, we can all sit at home scared and let our lives and economy crumble or we can act prudently to manage the impact of COVID and work towards more normal lives. As the current outbreak moderates and stay at home orders are lifted, there will be some recovery of demand. Many people will want to travel. There could be waves of outbreaks and pullbacks in demand, but a vaccine will moderate both. We don’t see lower travel in the winter when seasonal flu spikes, nor have regional outbreaks of other communicable diseases hurt travel. The most pessimistic outlooks have demand in 2023 returning to 2019 levels. I’m hoping for better, but I think United will survive until then. The management team has moved aggressively to position the company for the future. It will look different and many employees will loose their jobs.

If a people see no future for business or discretionary travel, what is the purpose of FlyerTalk?

ryman554

You don't need that to prove it. You just need the refund thread to point out that United is hoarding everything they can at a significant PR cost and potential DOT action.

fumje

To be fair, you could argue many things UA do come at significant PR cost. They seem inured.

jsloan

Although spartacusmcfly was correct to point out that I had mistakenly conflated profit and cash flow, when DL announced results this morning, they mentioned that their daily cash burn at the end of March was $100MM/day, and that their goal is to trim it to $50MM/day by the end of the June quarter. That means they're projecting a negative cash flow between $4.5BB and $9.0BB by the end of June, depending upon when (or if) they reach their goal. As a result, DL also announced that they're planning a massive influx of capital -- basically, they're going to be taking the same measures that UA already has.

Although UA is a smaller airline than DL, its cost structures are similar, so it wouldn't surprise me if UA's cash burn were in similar territory. I suspect we'll know when UA makes its official earnings release.

WineCountryUA

Saw a report on SeekingAlpha that BoA pegs UA's future burn rate at $55M
($1.65B/month)
Unknown the conditions to achieve that burn rate

Found the BofA report but not public (available to Merrill Lynch customers)
Thinks UA's current burn rate is $65M/day ($2B/month) but UA should be able to reduce that to $55M/day
Taking in account all announced steps -- operational reductions, starting liquidity, new loans / credit lines, CARES loans/grant, stock offering, .... UA might have access to $16-17B

Not mentioned by BoA some of the loans require UA to maintain $2B liquidity and there are some (anther $2B) short debt due later this year -- probably will try to refinance that.

TomMM

I am seeing some of UA's longer term debt trading at a 15% - 25% discount. Their debt maturing 12/2020 is trading about 2% discount. A quick look at DL's debt showed about the same.

bocastephen

I don't see it that way, and I was in the industry years ago - what they see is a wing and prayer that enough people/entities will buy the shares either outright at the offering, or from their inventory over time - they are taking a gamble the industry will improve and they can unload their own share inventory at higher prices, meanwhile they have enough margin between the offering price and the money need to be paid to United to hold the stock until either it's sold, or their sales staff and trading staff have sufficient success pumping and dumping the remaining inventory. It's really an options bet taken by the bank...."buy" at a discount and hope to sell higher, or use the usual Wall Street scam techniques to inflate the stock price and unload it on customers.

I don't see any political pressure pushing the return of the MAX - in fact, I see the opposite as every government worldwide has bigger fish to fry, not to mention keeping their airlines actually in business. Taking deliveries of new aircraft after a massive loss of revenue and reserves would be the absolute last thing anyone is interested in. I forecast wave after wave of cancelations followed by the unfortunate rusting out of already constructed MAX airframes with no place to go because storage is now being taken by active livery that needs to wait out the crisis.

If would suggest preparing for a more permanent change in live in general. We are still not out from under the initial stage of the outbreak, and new re-infection waves are already hitting places that started to recover. Anyone forecasting a return to normalcy at this point is taking a wild guess - and there is no guarantee a vaccine will be available anytime soon, or do much more than blunt the effect of the virus on a portion of the population, no different from the flu vaccine.

spartacusmcfly

Not the right way to look at it. The burn today includes paying all the employees -- which is funded by the govt., so it's not really burn right now.

The burn number that matters is the burn as of Oct 1 after the entire labor force is furloughed. The Oct. burn number will go down by ~50%-75% from the numbers above.

jsloan

It is burn right now, because your liquidity figures already include the government monies. You're double-counting them.

The entire labor force is not going to be furloughed. That's called liquidation.

You can't just close up shop and hope for better days ahead. Not only would you have to refund ticket purchases during the interim period, you'd ensure that whenever you started back up, you'd start with empty planes. Who'd give UA money if they got the idea that UA wasn't planning to fly them anywhere?