verhalen

It seems that there are a lot of conflicting opinions about the financial status of UAL. On the one hand, you have the fact that UAL has applied for the largest ATSB loan guarantee -- this would suggest that the financial condition is dire. On the other hand, there are comments by UAL employees (on other bulletin boards, mainly) that indicate that UAL is now cash-flow neutral and can survive indefinitely under the status quo. (This is one reason that the employees cite for not going along with wage concessions.)

So, what I'm wondering is, who's right ? Can there be that much disagreement about the current financials ? Why would mgmt. apply for a huge ATSB loan if UAL could persist indefinitely with the status quo ?

If UAL reports a smaller loss than AMR for Q2 (as is expected by many), it will tend to boost the credibility of the viewpoint that UAL is not in dire financial shape.

richard

I think the reports of their financial shape are dire in the sense that "something needs to change" but not in the sense of "they are going out of business tomorrow."

They are not "cash flow neutral." I think they are still losing money, a great deal of money although we'll find out on Monday when earnings reports are issued.

I have long suspected that the press somehow loves picking on UAL but that AMR has somehow avoided the "limelight", somewhat unfairly. Their ill-timed (in retrospect) purchase of TWA and huge over capacity must be hurting, but only behind the scenes.

PremEx

Sooooo many issues at play.

Perceptions for wage concessions. Perceptions for stock analyists and investors. Perceptions for corporate officers trying to save their jobs. Perceptions for customers (corporate and individual) to get them to have faith in United and to keep flying them. Perceptions for vendors to help keep the supply line flowing. Perceptions for insurers and factorers. Perceptions for employees to keep moral up.

All different and often counter to one another. One hand wants their audience to think they are just about bust, while the other hand wants their audience to think things are not too bad.

Sometimes tough for investor to sort out, that's for sure. And the answer they come up with may not always be correct at that!

Peter M

Experts claim that UA was burning $5million in cash per day thru the difference between revenue and operating costs, although it is an improvement on the $20 million late last year.

Plato90s

UAL brought the limelight on itself for multiple reasons including (but not limited to)

* Firing the CEO
* Threatened strike by one of its unions
* Applying for the federally guaranteed loan

Note that AMR has not done any of these 3 things.

mdtony

I have read some reports in the Wall Street Journal that quoted analysts -- yeah, I know, take what they say with a grain of salt -- who said that UAL really wasn't in bad enough shape to be a shoo in for the loans. They pointed to the assets UAL has that are unencumbered and said they can take out loans against those.

I don't know what the final resolution will be, but it looks like, assuming that the pilots approve the ten percent pay cut, the employees will have given back around $1 billion ($1.5 billion if you include the $500 million in deferred salary for the mechanics). So the folks evaluating things may not give UAL the loan guarantees, according to these analysts.

Then, of course, you have the folks who are saying that UAL is dead.

Take it for what it is worth.

Me? If I were going to invest in this company, I would buy the senior bonds, preferably the secured ones. I figure you'll get a 12 percent return on these things in interest, and then you'll get some price appreciation if the loan guarantees are approved and the pilots approve the pay cuts.

767-322ETOPS

I'm not well versed in FAA regs or aircraft financing, but I have a friend who works for a commercial bank which does some lease business with UAL.

He was at a credit risk review meeting within the past 4 weeks and one of the "names" discussed was UAL. He said they weren't judged a critical risk because apparently there are some types of maintenance which the FAA allows a carrier to defer (not sure if financial duress is a condition to do so), and that UA has not in fact elected to defer the maintenance. The bank's thinking is that is UAL was really hurting for cash, then they would be deferring this elective maintenance.

Peter M

Would deferring elective maintenance save UAL money ? Probably not, because maintenance is normally a fixed overhead - unless they can start firing mechanics!

How would you describe the condition of UA aircraft ? Elevators keep jamming, computers keep flaking out, and coulings keep falling off. I've boarded UA aircraft with computers malfunctioning and wing elevator coulings missing, and wondering if I should make a fuss and get off before take-off. Speaking as a passenger, the last thing the aircraft need is less maintenance, elective or mandatory. However, if you really want to see aircraft looking in a bady way, have a walk past NW DC10's some time.

JoeDoakes

When evaluating UAL's financial condition, keep in mind that they have 24.5 BILLION yes BILLION dollars' worth (as of the close of their most recent fiscal year) of legally binding lease obligations that appear nowhere in their financial statements.

Permissible under current accounting rules? Certainly. Scary as heck? I sure think so.

verhalen

Well, I guess we might not know the "truth" until UAL's NTSB application is either approved or turned down. If it's turned down and nothing (bad) happens, then I suppose we'll be able to assume that management was "bluffing" (using a trumped-up loan application to try and leverage wage concessions). That would be weird, if true.

transpac

So, are you doing this? Or just recommending others do it with their money?

Mark Rogers

I'm sorry, but I have to take exception with this paragraph. UA's maintenance is still top-notch; far and away the best of anywhere I've been. I have never once doubted the airworthiness of any UA aircraft I've been on. If you're talking about the Airbus cowlings, btw, United Engineering actually implemented a solution that Airbus was unable to provide.

Scion

Comparing AMR to UAL, simply from an organizational standpoint, is like comparing apples to oranges.

AMR, as a corporation, is much larger than UAL. UAL owns only one airline, United Airlines (UA). AMR owns American Eagle and American Airlines. American Airlines in turn owns TWA LLC. American Eagle is the largest regional airline in the world. It is large enough to be considered by the DOT as a major airline in its own right. That is why you can't compare the losses at AMR to those at UAL, since AMR's losses do not just reflect the losses of one airline.

It has long been held that AMR plays a shell game with losses at American Airlines by spreading them across Eagle and mainline AA, the assumption being that Eagle makes money even when AA doesn't. This is one of the reasons why AA would be adverse to spinning off Eagle.

By comparison, UA does not own its regional affiliates. Hence, when it transfers routes from mainline to its regional affiliates, it loses a proportion of the revenue from those routes. This is just one of the reasons why UA's revenue has been shrinking.

Given the breath of its operations, one would expect AMR's losses to be much greater than those at UAL. But, proportionally, they are not much greater than those at UAL. That is just one of the reasons why AMR is seen to be doing better than UAL.

Another reason is that AMR has more assets than UAL. We are not just talking planes here. One of those assets is, in fact, Eagle. So, it is not a question of avoiding the limelight. It is a question of having the appropriate assets at the right time and managing them effectively.

mdtony

It's something I'm considering. Not sure if I'm going to pull the trigger on it, depends on whether or not I feel like juggling my portfolio around or not. Plus, there are a lot of stocks that are on sale now, so UAL bonds are just one of the options I am looking into.

1K-SFO

Interesting factoid in the last Time magazine: UA's loan-guarantee request was $1.8 billion (or close to it)-- Amtrak's was $200 million. And all that foot-dragging over Amtrak...