Mar 20, 2020, 9:29 pm
Last edit by: WineCountryUA
Please do not modify or remove
In recent days a number of threads have started touching on the impacts on UA as a business going forward due to the travel disruption of COVID-19 --- including multiple Viability / Bankruptcy / Bailout discussions. While inconceivable a few months ago, UA (and all commercial airlines) is facing challenges that are uncharted.
This consolidated thread has been created by merging a number of existing threads that trend to address essentially the same subjects.
Some thread guidelines
-- This thread / forum is for discussing UA and the UA traveler, so please focus on UA in these discussions. Other forums exist to discuss other carriers or the industry in general -- we do just UA here.
-- This thread is for discussion of how UA gets from here to its future state.
-- All the standard FT rules apply. We will have a civil, constructive, collegial discussion -- even in these turbulent times.
-- While much of this will play out in the political arena, this forum is not the place for political / OMNI discussions. Please use threads in appropriate forums for that, such as Covid-19 US tax cuts or fiscal stimulus
-- Similarly, discussions of the evils / greed of corporations or other broad societal issues are out of scope, those are for OMNI -- let's stick to discussing UA, its past and its future here
-- Please do not start new threads on these topics in the UA forum. One reason for this consolidated thread was to minimize the redundant posts in separate threads. There is plenty of room in the scope of this thread to cover all aspects of these topics. (Note things like M&A, restructuring, ... would all be in scope).
-- Please once you have laid out your position, do not repetitively re-state that opinion. It is usually a better discussion if many participate vs a few dominating the thread
On behalf of the UA Moderator Team
WineCountryUA
In recent days a number of threads have started touching on the impacts on UA as a business going forward due to the travel disruption of COVID-19 --- including multiple Viability / Bankruptcy / Bailout discussions. While inconceivable a few months ago, UA (and all commercial airlines) is facing challenges that are uncharted.
This consolidated thread has been created by merging a number of existing threads that trend to address essentially the same subjects.
Some thread guidelines
-- This thread / forum is for discussing UA and the UA traveler, so please focus on UA in these discussions. Other forums exist to discuss other carriers or the industry in general -- we do just UA here.
-- This thread is for discussion of how UA gets from here to its future state.
-- All the standard FT rules apply. We will have a civil, constructive, collegial discussion -- even in these turbulent times.
-- While much of this will play out in the political arena, this forum is not the place for political / OMNI discussions. Please use threads in appropriate forums for that, such as Covid-19 US tax cuts or fiscal stimulus
-- Similarly, discussions of the evils / greed of corporations or other broad societal issues are out of scope, those are for OMNI -- let's stick to discussing UA, its past and its future here
-- Please do not start new threads on these topics in the UA forum. One reason for this consolidated thread was to minimize the redundant posts in separate threads. There is plenty of room in the scope of this thread to cover all aspects of these topics. (Note things like M&A, restructuring, ... would all be in scope).
-- Please once you have laid out your position, do not repetitively re-state that opinion. It is usually a better discussion if many participate vs a few dominating the thread
On behalf of the UA Moderator Team
WineCountryUA
UA's Viability / Financial Future due to the COVID-19 Era [Consolidated]
Apr 23, 2020, 11:21 pm
#781
Join Date: Apr 2001
Location: TPE, SF, DC
Programs: UA Lifetime GS 4mm
Posts: 891
Please back up sweeping generalized statements like this, specially since most competent analysts and experts would conclude exactly the opposite on all 3 items you mention. Ongoing problems are representative of a global pandemic that has pulled the entire airline industry in every country to the brink.
Normally I would agree with you, but things have changed. I’m not thrilled that if and when I get to see my wife and kids again I won’t get my normal meal or drink service. I’ll simply be happy to see them again. So many friends at UA, so many frequent flyer friends that need UA to succeed. My gripes about status or club stuff are so unimportant right now I’m simply trying to survive.
Just look at other businesses with leadership that focuses on the customer experience, product competitiveness (or uniqueness), and employee welfare - they have always outperformed any company like United, where those 3 items are less important. Could anyone claim Delta offers an inferior product, customer experience and working environment to United? I think not. Does Nordstrom not outperform Macy's? This is a pretty straightforward analysis.
But most people and companies and even local/state governments are just trying to survive til some semblance of normalcy can return.
This can happen if no available vaccine but herd immunity develops when 60-70% population is infected (but millions will probably die), or if mass produced cheap vaccine becomes miraculously available in 18-24 month time. Yes, this is possible fantasy and definitely moonshot effort because no vaccine has ever been successfully deployed in less than 4 years (mumps vaccine). But then vaccine development has never been so globally focused with such sense of urgency.
https://www.usatoday.com/story/news/...is/2983177001/
Separate from pharmaceuticals giants developing their own vaccines and manufacturing capacity, there is the Coalition of Epidemic Preparedness Innovation (CEPI) financing 10 vaccine candidates - funded by 14 governments as well as the Bill and Melinda Gates Foundation and the U.K.'s Wellcome Trust. Bill Gates has committed $billions through his foundation to fund simultaneous development of at least 7 viable experimental vaccine candidates and corresponding specialized factories to mass produce vaccine to make this a practical reality.
Nordstrom & Nieman Marcus are by many metrics better than Macys, but all three chains are poised to enter bankruptcy by mid-summer if department stores continue to suffer loss of traffic during extended shutdown of non-essential businesses. Many tech companies are laying off people. Entire travel industry is being decimated. Delta and Southwest are acknowledged to be better run than UA, but all are being affected by travel collapse and need to raise cash and reduce expenses to survive burn rate.
UA management is logical to raise funds through all possible avenues to survive cash burn for next 24 months. If secondary stock equity offering fails to attract buyers at original set price and need to be lowered, that is the function of this pandemic environment for investor risk aversion toward travel industry. It’s not about losing face, it’s about survival. I’m realistic some US airlines will enter bankruptcy if no practical & cost effective vaccine is available in 18-24 month time. But I prefer to remain hopeful this will not happen, and UA will pull through when travel demand is somewhat restored, along with meal/drink service and Polaris Lounges.
Last edited by npei; Apr 24, 2020 at 1:56 am
Apr 24, 2020, 6:50 am
#782
Join Date: May 2013
Posts: 3,361
The banks are less important - it's the market's voice that is most important. Obviously the underwriting banks see, or at least saw, a huge fee opportunity and when this deal was negotiated, perhaps believed a turning point in the virus fight was viable within a few months. Now the ink on their deal is long dry, and that turning point is now far in the distance, unseen at this time, and the market has pushed UA stock below the initial offer price, which thus puts both the banks and United in a rather embarrassing pickle.
Maybe one more piece of sage advice from Ed Bastian, like this week, and UA stock could hit $19-20 by the offer date - that won't be pretty.
Maybe one more piece of sage advice from Ed Bastian, like this week, and UA stock could hit $19-20 by the offer date - that won't be pretty.
Apr 24, 2020, 7:15 am
#783
Join Date: Mar 2018
Programs: UA 1K, AA EXP. Hilton Diamond
Posts: 1,132
Seems to me UA is fine on this deal, the share offering priced at $26.50 which was a 4.5% discount at the time. The people who paid that price and are now upside down in their trade are in the pickle at the moment.
With that said, looking back I wonder what UA paid for those shares in their buybacks..
With that said, looking back I wonder what UA paid for those shares in their buybacks..
Apr 24, 2020, 2:22 pm
#785
Moderator: United Airlines
Join Date: Jun 2007
Location: SFO
Programs: UA Plat 1.995MM, Hyatt Discoverist, Marriott Plat/LT Gold, Hilton Silver, IHG Plat
Posts: 66,821
If interested, UA has released the initial details of it's CARES funding
some "highlights"
Much more detail (87 pages) in the linked document
some "highlights"
On April 20, 2020, in connection with the Payroll Support Program, United entered into a Payroll Support Program Agreement (the “PSP Agreement”)with the U.S. Treasury Department providing the Company with total funding of approximately $5.0 billion
....
On April 20, 2020, UAL issued a promissory note (the “PSP Note”) to the U.S. Treasury Department evidencing senior unsecured indebtedness of UAL in the initial principal amount of approximately $714.0 million. The principal amount of the PSP Note will increase in an amount equal to 30% of any disbursement made by the U.S. Treasury Department to United under the PSP Agreement after the initial issuance date. The aggregate principal amount of the PSP Note after all disbursements will be approximately $1.5 billion
....
In addition to the PSP Note, UAL also entered into a warrant agreement (the “Warrant Agreement”) with the U.S. Treasury Department on April 20, 2020,pursuant to which UAL will issue to the U.S. Treasury Department warrants to purchase up to approximately 4.6 million shares of common stock, pro ratain conjunction with increases to the principal amount outstanding under the PSP Note (the “Warrants”), with an initial issuance of warrants to purchase up to approximately 2.3 million shares of common stock. The Warrants will have a strike price of $31.50 per share (which was the closing price of UAL’s common stock on The Nasdaq Stock Market on April 9, 2020). The Warrants will expire five years after issuance, and are exercisable either through netshare settlement in cash or in shares of common stock, at UAL’s option
....
On April 20, 2020, UAL issued a promissory note (the “PSP Note”) to the U.S. Treasury Department evidencing senior unsecured indebtedness of UAL in the initial principal amount of approximately $714.0 million. The principal amount of the PSP Note will increase in an amount equal to 30% of any disbursement made by the U.S. Treasury Department to United under the PSP Agreement after the initial issuance date. The aggregate principal amount of the PSP Note after all disbursements will be approximately $1.5 billion
....
In addition to the PSP Note, UAL also entered into a warrant agreement (the “Warrant Agreement”) with the U.S. Treasury Department on April 20, 2020,pursuant to which UAL will issue to the U.S. Treasury Department warrants to purchase up to approximately 4.6 million shares of common stock, pro ratain conjunction with increases to the principal amount outstanding under the PSP Note (the “Warrants”), with an initial issuance of warrants to purchase up to approximately 2.3 million shares of common stock. The Warrants will have a strike price of $31.50 per share (which was the closing price of UAL’s common stock on The Nasdaq Stock Market on April 9, 2020). The Warrants will expire five years after issuance, and are exercisable either through netshare settlement in cash or in shares of common stock, at UAL’s option
Last edited by WineCountryUA; Apr 24, 2020 at 2:28 pm
Apr 24, 2020, 3:46 pm
#786
FlyerTalk Evangelist
Join Date: May 2012
Location: MCO
Programs: AA, B6, DL, EK, EY, QR, SQ, UA, Amex Plat, Marriott Tit, HHonors Gold
Posts: 12,809
May 8, 2020, 8:26 pm
#787
Join Date: Jan 2005
Location: EWR
Programs: UA GS
Posts: 39
When United Pawned Old Jets, Bond Traders Sent a Stark Warning
United Air Scraps $2.25 Billion Bond Deal After Terms Disappoint
(Bloomberg) -- Late on Friday, after some 48 hours of frantic attempts to lure investors to their faltering bond sale, executives at United Airlines let it be known that the deal was dead.It was an odd moment, stuck smack in the middle of one of the busiest corporate bond booms ever, a period in which investors have shown themselves to be receptive to almost any debt offer backed by good collateral. But this last part was where United got in trouble. For collateral, it had scraped together 360 old jets, some of which analysts considered would be nearly worthless in a few years.
....
Before pulling the deal on Friday, United had sweetened terms in a bid to attract investors. It also added a clause that would trigger repayment of the bonds at a substantial premium to par, known as a make-whole, should the company file for bankruptcy. And while the pulled deal dims the company’s funding prospects, it still has a $2 billion one-year loan giving it some breathing room. It had about $9.6 billion of liquidity as of April 29.
....
Before pulling the deal on Friday, United had sweetened terms in a bid to attract investors. It also added a clause that would trigger repayment of the bonds at a substantial premium to par, known as a make-whole, should the company file for bankruptcy. And while the pulled deal dims the company’s funding prospects, it still has a $2 billion one-year loan giving it some breathing room. It had about $9.6 billion of liquidity as of April 29.
Last edited by WineCountryUA; May 8, 2020 at 8:58 pm Reason: When posting copyright material, credit / link the source of the information and give a brief summary or clip of the content
May 8, 2020, 8:53 pm
#788
Suspended
Join Date: Aug 2005
Location: BOS
Posts: 15,027
Shouldn't have wasted money on stock buybacks.
May 8, 2020, 9:14 pm
#789
Join Date: Jan 2005
Location: EWR
Programs: UA GS
Posts: 39
United unsecured 2025 maturing debt is trading at 59 cents on the dollar or 18% yield. Their CDS is trading at 22point. Not many companies come back from those levels. Most likely outcome here is chapter 11 especially after today's failed bond offering.
By comparison, Delta 2025 unsecured bond trading at 99 cents on dollar or 7% yield.
By comparison, Delta 2025 unsecured bond trading at 99 cents on dollar or 7% yield.
Last edited by Coke Bear; May 8, 2020 at 9:19 pm
May 8, 2020, 9:19 pm
#790
FlyerTalk Evangelist
Join Date: May 2000
Location: TPA for now. Hopefully LIS for retirement
Posts: 13,688
Most if not all of the U.S. majors are going to have to go through a(nother) Ch. 11 BK, unfortunately.
May 8, 2020, 9:31 pm
#792
Join Date: Nov 2006
Location: DSM, BKK or anywhere with an airport
Programs: UA 2P, HH Gold
Posts: 1,018
I’m not a banker so sorry if this is a silly question - but in a bankruptcy doesn’t the judge decide who gets paid what ? What I’m asking is that even with the “make whole” provision, couldn’t the bonds still be worthless if UAL goes into bankruptcy and the bk judge decides not to honor the bond provisions ?
May 8, 2020, 9:51 pm
#793
Join Date: Jan 2005
Location: EWR
Programs: UA GS
Posts: 39
I’m not a banker so sorry if this is a silly question - but in a bankruptcy doesn’t the judge decide who gets paid what ? What I’m asking is that even with the “make whole” provision, couldn’t the bonds still be worthless if UAL goes into bankruptcy and the bk judge decides not to honor the bond provisions ?
So if bond is trading at 40 cents on the dollar it means equity/stock is already likely worth zero
This is likely why Warren buffet sold all his airline stocks.
Last edited by Coke Bear; May 8, 2020 at 10:00 pm
May 9, 2020, 5:58 am
#795
FlyerTalk Evangelist
Join Date: May 2000
Location: TPA for now. Hopefully LIS for retirement
Posts: 13,688
They'll probably all "survive," meaning they will be in existence at the other end of all this. They will just need a trip through Ch. 11 to do so. (Though you are right, of those three DL is the least likely to need to do that, along with WN.)