As alluded by various previous posts, United must meet certain cash flow goals per the DIP financing terms. What are those dates and UA's chances of meeting them? I'm not booking anything on UA for after June 15th. Is it wishful thinking to hope that UA will last even that long?

Bumping this to see if anyone knows, I'm curious about this too.

One key date to watch mentioned elsewhere is 17 March 03.

That date is related to the possibility of abbrogation of labor contracts not the DIP financing.

Here is the DIP covenant deal [source: pages 231 and 271 of the McKinso-slides]...

1. The measuring stick is cumulative EBITDAR, or essentially cash flow generated from operations: earnings before interest (about $50m a month), taxes (0), depreciation/amortization, and aircraft rent.

2. The first checkpoint is February 2003 results. Presumably these are known internally already but won't be released til next month's 8K. The level for the checkpoint is approximately negative $1bn [cumulative drain for Dec, Jan, Feb].

3. From February onwards, the cumulative EBITDAR convenant moves upward-- in other words monthly EBITDAR must turn positive.
By October, the cumulative must be positive.
But then things get really tight. By December 2003, UAL must have $575 million in cumulative EBITDAR.

4. To avoid this big jump at the end, UA's operating plan relies on a somewhat slower start, and a steeper but smoother ascent over the summer through the Fall. Whereas the first DIP checkpoint in Feb is negative $1bn, the business plan calls for UAL to be at approximately negative $600m, leaving about $400m in "headroom" to work with.

5. This "headroom" shrinks quite a bit over the next three months, as the UAL plan does not anticipate a cash-flow-positive month until May. Essentially the plan calls for zero net cash flow (EBITDAR) in March and April. The April checkpoint figure is about negative $800m, which is $200m harder to hit than Feb.

I would expect UA will have an easy time making the Feb and Mar checkpoints. April and May look much tougher.

Here's the link;

That's the date UAL is going to file a motion under Sec. 1113. - Rejection of collective bargaining agreements for all union contracts, and the Judge has aprox. 40 to 45 days to hand down his ruling.

Thanks. The checkpoint amounts are easy enough to find... they're on pages 62-63:

28-Feb-03 -964,000,000
31-Mar-03 -881,000,000
30-Apr-03 -849,000,000
31-May-03 -738,000,000
30-Jun-03 -585,000,000
31-Jul-03 -448,000,000
31-Aug-03 -219,000,000
30-Sep-03 -98,000,000
31-Oct-03 46,000,000
30-Nov-03 112,000,000

Which translates, month by month, to:
March-03 83,000,000
April-03 32,000,000
May-03 111,000,000
June-03 153,000,000
July-03 137,000,000
August-03 229,000,000
September-03 121,000,000
October-03 144,000,000
November-03 66,000,000

The numbers become considerably more difficult to reach after November 2003.

UAL is supposed to be cashflow-positive (EBITDAR-positive) as of now, on the DIP schedule. As of April, according to the McKinsey slides.

p.s. There's a rather serious error on p. 231 of the McKinsey slides! wonder if their high-paid little gems caught it by now?
The slide says the covenant is $575m for December 2003. But OOPS-- starting in Dec 2003, the baseline changes [from Dec 1, 2002, to Jan 1, 2003], so this "goal" which was graphed in all its glory for the creditors is actually the wrong goal... it's off by the amount of UAL's EBITDAR drain in Dec 2002... I expect by p. 231 every audience member was sound asleep, but still!


[This message has been edited by martin33 (edited 03-09-2003).]

Interesting implication, if on the one hand meeting the EBITDAR covenants basically require UA to become cash-flow positive this month, but on the other hand UA has said that the March numbers will not be any better than January's when the cash burn rate was around $10M/day....

What will the lenders do?

there is some slack at the beginning, and the milestones are on the cumulative numbers, not the per-month imputed values, so until a crunch in April or May, the lenders couldn't do much.

the other issue is that the media seldom report EBITDAR-- usually it's earnings, sometimes overall cash flow, but rarely the number that counts. perhaps because UAL doesn't report it directly.

Is there a CPA in the house? If so, can you compute UAL's January EBITDAR from the latest 8-K numbers. Here is the official definition, from the credit agreement:


�EBITDAR� shall mean, for any period, all as determined in accordance with Agreement
Accounting Principles, the consolidated net income (or net loss) of the Parent and its
Subsidiaries for such period, plus (a) the sum of (i) depreciation expense, (ii) amortization
expense, (iii) other non-cash charges (excluding any book gains or losses recognized on the
return of aircraft associated with a rejection or settlement of the Borrower�s credit agreement
dated as of November 17, 1999, as amended, with Kreditanstalt fur Wiederaufbau and the
Borrower�s 1997-1 enhanced equipment trust certificates), (iv) consolidated federal, state and
local income tax expense, (v) gross interest expense for such period less gross interest income for
such period, (vi) aircraft rent expense, (vii) extraordinary losses, (viii) any non-recurring charge
or restructuring charge; (ix) the cumulative effect (whether positive or negative) of any change in
accounting principles; (x) any Fees (as defined in the Additional DIP Credit Agreement) and fees
set forth in the Fee Letter paid, in each case, by the Borrower and not otherwise added back to
consolidated net income (or net loss) pursuant to any of the foregoing clauses of this definition;
and (xi) the difference (whether positive or negative) between the cash paid by Bank One,
Delaware, N.A. during such period pursuant to its �Annual Guaranteed Miles Purchased� (as
defined in the agreement referred to in clause (i) of the definition of Co-Branded Card
Agreements) and the amount of the revenue recorded during such period on account of the miles
so purchased by Bank One, Delaware, N.A. pursuant to the Co-Branded Card Agreements during
such period and prior periods less (b) extraordinary gains plus or minus (c) the amount of cash
received or expended in such period in respect of any amount which, under clause (viii) above,
was taken into account in determining EBITDAR for such or any prior period.

Based on all that, I did a quick calculation on my slide ruler, and came up with 6.

that's why we need a cpa with a little curiosity and enough free time to dowload the numbers from Edgar.