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United Post 04Q08 Loss - $1.3bil  
User currently offlineLAXintl From United States of America, joined May 2000, 24310 posts, RR: 47
Posted (5 years 2 months 3 weeks 4 days 15 hours ago) and read 7419 times:

Earnings season has started with not pretty, but expected numbers.

Being underwater on the fuel hedges very negatively effected the quarters performance and cash drain.

Quote:
Hedging losses drive UAL 4Q loss of $1.3 billion
Wednesday January 21

MINNEAPOLIS (AP) -- United Airlines parent UAL Corp. on Wednesday said it lost $1.3 billion in the fourth quarter because of operating losses and fuel-price bets that turned sour as oil prices fell. Without the bad hedges, results were better than analysts had expected.

UAL said it lost $9.91 per share, compared with a loss of $53 million, or 47 cents per share, during the same period last year. UAL reported revenue of $4.55 billion, down 9.6 percent from $5.03 billion during the same period last year.

The hedging loss included $370 million in cash for fuel hedges that settled during the quarter. United also had to record non-cash charges of $566 million on fuel hedges that show a loss but have not yet settled.

United ended the quarter with $2.04 billion in unrestricted cash, down from $2.93 billion at the end of the third quarter.

http://biz.yahoo.com/ap/090121/earns_ual.html?.v=10

On an annualized basis - United lost $5.35 billion in 2008 versus a $403 million profit in 2007!


From the desert to the sea, to all of Southern California
48 replies: All unread, showing first 25:
 
User currently offlineStillageek From United States of America, joined Jan 2007, 73 posts, RR: 0
Reply 1, posted (5 years 2 months 3 weeks 4 days 15 hours ago) and read 7348 times:

Now suddenly the AMR loss doesn't look so bad.

User currently offlineDLMD90 From United States of America, joined Jan 2009, 257 posts, RR: 0
Reply 2, posted (5 years 2 months 3 weeks 4 days 15 hours ago) and read 7309 times:



Quoting Stillageek (Reply 1):
Now suddenly the AMR loss doesn't look so bad.


 checkmark   checkmark 

My thoughts exactly!!


User currently offlineUnited787 From United States of America, joined May 2005, 2641 posts, RR: 2
Reply 3, posted (5 years 2 months 3 weeks 4 days 15 hours ago) and read 7188 times:

Forgive me for the following questions as I am not an accountant:

How did they do when you subtract out the fuel hedge losses?

Are they expected to have more fuel hedge losses in the 1st quarter of 2009?

It seems like UA's reportings are always clouded with huge "one-time" write downs and other stuff so it is difficult to understand how the operating expenses and operating revenue compare????


User currently offlineStitch From United States of America, joined Jul 2005, 29656 posts, RR: 84
Reply 4, posted (5 years 2 months 3 weeks 4 days 14 hours ago) and read 7167 times:
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Quoting LAXintl (Thread starter):
Being underwater on the fuel hedges very negatively effected the quarters performance and cash drain.

And yet when they didn't have those hedges and oil was in the triple digits, they were getting killed on fuel prices, as well.

Damned if they do and damned if they don't.  Sad

Come on CO. Make my day and take over UA. All I ask if you keep the widebodies three-class service.


User currently offlineLAXintl From United States of America, joined May 2000, 24310 posts, RR: 47
Reply 5, posted (5 years 2 months 3 weeks 4 days 14 hours ago) and read 7109 times:



Quoting United787 (Reply 3):
How did they do when you subtract out the fuel hedge losses?

In two ways.

For the actual fuel consumed in Q4 UA paid for it at the higher hedged rate costing it $370 million in cash above market price.

For the forward contracts, they had to revalue them on the books and took a non-cash charge of $566 million, however the actual loss/gain on them wont be know till they settled (fuel consumed).

Quoting United787 (Reply 3):
Are they expected to have more fuel hedge losses in the 1st quarter of 2009?

Yes, unless fuel rises above the hedge contract rates.

Quoting Stitch (Reply 4):
Damned if they do and damned if they don't.

Suppose so, but analyst seem to be upbeat about these earnings as they are better then expected.

Quote:
"The truth of the matter is, people get scared because of these enormous losses that were created by these onerous fuel hedges," said Robbert Van Batenburg, head of equity research at Louis Capital Markets. "But I urge people to look beyond that because that's going to be going away" as hedges expire and airlines begin to benefit from lower fuel prices.




From the desert to the sea, to all of Southern California
User currently offlineLAXDESI From United States of America, joined May 2005, 5086 posts, RR: 48
Reply 6, posted (5 years 2 months 3 weeks 4 days 13 hours ago) and read 6930 times:



Quoting LAXintl (Reply 5):
Quoting United787 (Reply 3):
Are they expected to have more fuel hedge losses in the 1st quarter of 2009?

Yes, unless fuel rises above the hedge contract rates.

Anyone know the details of future hedges?


User currently offlineLAXintl From United States of America, joined May 2000, 24310 posts, RR: 47
Reply 7, posted (5 years 2 months 3 weeks 4 days 13 hours ago) and read 6793 times:

According to their filing, they have 54% of estimated Q1 consumption hedged at an average of $104, and 36% of full year use at $103.

These include mix of collar, puts, and calls, some of which can be unwound as needed.



From the desert to the sea, to all of Southern California
User currently offlineWorldTraveler From , joined Dec 1969, posts, RR:
Reply 8, posted (5 years 2 months 3 weeks 4 days 13 hours ago) and read 6747 times:

the most interesting piece of data is UA's cash position. They now have $2.3B in cash and cash equivalents on hand compared with $4.3B a year ago. Given that UA still has a significant amount of bad hedges to cover and the credit market tight, UA could be unable to meet its cash obligations later in the year. UA has a significant amount of hedges that require payment by UA to the counterparty at prices below $105/bbl. Oil is considerably less than that right now and into the future.

User currently offlineUnited1 From United States of America, joined Oct 2003, 5815 posts, RR: 9
Reply 9, posted (5 years 2 months 3 weeks 4 days 11 hours ago) and read 6527 times:



Quoting WorldTraveler (Reply 8):
They now have $2.3B in cash and cash equivalents on hand compared with $4.3B a year ago.

Actually those are inaccurate numbers WT....

UA has 3.23B in cash on hand compared with 4.4B a year ago.

UAs cash balance currently is comprised of....

2 Billion in free cash
272 million in restricted cash
965 Million in fuel hedging deposits held by counter parties

UA already has the cash that they need to pay off the hedges on deposit with the fuel hedging counter parties.



Semper Fi - PowerPoint makes us stupid.
User currently offlineTVNWZ From United States of America, joined Feb 2006, 2308 posts, RR: 2
Reply 10, posted (5 years 2 months 3 weeks 4 days 11 hours ago) and read 6462 times:

Wall Street apparently hated the AMR numbers. Shares of AMR fell 24 percent today, to $7.98.

UAL shares fell only 6 percent to $10.91.


User currently offlineFL787 From United States of America, joined Aug 2007, 1531 posts, RR: 12
Reply 11, posted (5 years 2 months 3 weeks 4 days 10 hours ago) and read 6258 times:

With the capacity decreases, is it just a continuation of the plan to phase out the 737s and 6 744s or are there new cuts?


717,72S,732/3/4/5/G/8/9,744,752/3,763/4,772/3,D9S/5,M8/90,D10,319/20/21,332/3,388,CR2/7/9,EM2,ER4,E70/75/90,SF3,AR8
User currently offlineWorldTraveler From , joined Dec 1969, posts, RR:
Reply 12, posted (5 years 2 months 3 weeks 4 days 9 hours ago) and read 6232 times:



Quoting United1 (Reply 9):
965 Million in fuel hedging deposits held by counter parties

UA is highly unlikely to retain that cash. Their hedges are already underwater based on their disclosed hedging reports.


User currently offlineDrerx7 From United States of America, joined Jun 2000, 5062 posts, RR: 8
Reply 13, posted (5 years 2 months 3 weeks 4 days 9 hours ago) and read 6162 times:

So what is the worst case scenario over at UA? I'd like to see CO/UA merge from a enthusiast point of view...


Third Coast born, means I'm Texas raised
User currently offlineUnited1 From United States of America, joined Oct 2003, 5815 posts, RR: 9
Reply 14, posted (5 years 2 months 3 weeks 4 days 9 hours ago) and read 6105 times:



Quoting WorldTraveler (Reply 12):
Quoting United1 (Reply 9):
965 Million in fuel hedging deposits held by counter parties

UA is highly unlikely to retain that cash. Their hedges are already underwater based on their disclosed hedging reports.

No kidding......unless the price of oil were to rise dramatically UA is going to be paying that $965 million out over the next 4 quarters.

Your original post was wondering about how UA was going to pay for the hedges and if UA was going to run into cash issues by the end of the year. The cash to pay those hedges off is already included in UAs hedging deposits. The only reason UA would owe more then the $965 Million that they already have put aside is if the price of oil were were to continue to fall.

Quoting Drerx7 (Reply 13):
So what is the worst case scenario over at UA?

UA pays off the hedges over the next four quarters and moves on. Its unfortunate that they have to pay the money out for the hedges but at the same time they are projecting to raise about $350 million this quarter as well as be cash flow positive second and third quarters. Its going to be another rough year for the all the airlines but it doesn't look like UA is going to be facing a liquidity crunch in 2009.

As for a UA/CO merger well theres tons of speculation on this board regarding one sometime in the future. Right now I would just look forward to the UA/CO Partnership realy taking off this year.



Semper Fi - PowerPoint makes us stupid.
User currently offlineCruiseshipcrew From United States of America, joined Aug 2008, 199 posts, RR: 1
Reply 15, posted (5 years 2 months 3 weeks 4 days 9 hours ago) and read 6084 times:



Quoting Drerx7 (Reply 13):
So what is the worst case scenario over at UA? I'd like to see CO/UA merge from a enthusiast point of view...

I hope not! I love Continental and would hate to see a great airline become like UA.



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User currently offlineCairo From , joined Dec 1969, posts, RR:
Reply 16, posted (5 years 2 months 3 weeks 4 days 8 hours ago) and read 5986 times:



Quoting United1 (Reply 14):
it doesn't look like UA is going to be facing a liquidity crunch in 2009.

After the likely $965m hedging losses get paid, and seeing how the credit card companies would be insane to unrestrict that cash (their only protection against having to refund pre-paid tickets in case of a UA bankruptcy, they could even restrict more)....UA's $2 billion is starting to cut it close for an airline it's size. (AA has a little over $3 billion, themselves down from $5 billion at the end of last year). I'd be surprised if the $350 million you mentioned they plan to raise will offset their 1Q loss in this economy by much, if at all.

The other airlines aren't much better, but UA may be cutting it the closest, cash wise, and may therefore have the least ability to survive anything less than a good 2009.

UA has a strong summer or by the end of '09 cash becomes critical and bankruptcy or an emergency sale is the only way out.

Cairo


User currently offlineLAXDESI From United States of America, joined May 2005, 5086 posts, RR: 48
Reply 17, posted (5 years 2 months 3 weeks 4 days 7 hours ago) and read 5883 times:



Quoting LAXintl (Reply 7):
According to their filing, they have 54% of estimated Q1 consumption hedged at an average of $104, and 36% of full year use at $103.

Thanks.

Quoting United1 (Reply 14):
Quoting WorldTraveler (Reply 12):
Quoting United1 (Reply 9):
965 Million in fuel hedging deposits held by counter parties

UA is highly unlikely to retain that cash. Their hedges are already underwater based on their disclosed hedging reports.

No kidding......unless the price of oil were to rise dramatically UA is going to be paying that $965 million out over the next 4 quarters.

Lower fuel prices will offset the losses on fuel hedges. As an example, if the average market fuel price for the year 2009 is around $60, then the weighted average fuel price for UA will be around $75 ((36% X $103)+(64% X $60)).

Airlines that do not have as large a legacy fuel hedge as UA will have a competitive advantage.


User currently offlineWorldTraveler From , joined Dec 1969, posts, RR:
Reply 18, posted (5 years 2 months 3 weeks 4 days 7 hours ago) and read 5867 times:

very well said, Cairo.

no CEO or CFO in the current credit crisis can be comfortable with losing control of half of the company's cash. UA is by far in the most critical cash position, exactly what pushed it into BK ahead of other carriers in 2002/2003.

Let's not jump and down about what CO can do for UA until we see UA's performance which is to be released in about a week.


User currently offlineUnited1 From United States of America, joined Oct 2003, 5815 posts, RR: 9
Reply 19, posted (5 years 2 months 3 weeks 4 days 5 hours ago) and read 5591 times:

Quoting Cairo (Reply 16):
After the likely $965m hedging losses get paid, and seeing how the credit card companies would be insane to unrestrict that cash (their only protection against having to refund pre-paid tickets in case of a UA bankruptcy, they could even restrict more)....

Only about 25 Million of UAs restricted cash is used for credit card hold backs. UA and Paymentech (Chase) reached an agreement where UA granted Paymentech a security interest in about $800 million dollars of the fleet. That agreement runs through January 20th of 2010. UA has no minimum cash balance requirement or any other known covenant regarding credit card hold backs untill that point.

http://media.corporate-ir.net/media_...ticles/4Q_2008_Investor_Update.pdf

Top of page two is UA CC Proccesor agreement.

[Edited 2009-01-21 20:12:55]


Semper Fi - PowerPoint makes us stupid.
User currently offlineCairo From , joined Dec 1969, posts, RR:
Reply 20, posted (5 years 2 months 3 weeks 4 days 5 hours ago) and read 5565 times:



Quoting LAXDESI (Reply 17):
Lower fuel prices will offset the losses on fuel hedges.

Not really, or rather that is very unlikely.

If fuel prices stay around where they are, then $965m of much-needed cash is out the window. To "offset the losses" as you say, UA would have to make a billion dollar profit somehow, numbers that haven't been seen in 9 - 10 years. In other words, the late 90s would have to come back again = huge last-minute fares with less LCC competition and insatiable demand. You see that happening soon in this economy?

Remember, the other airlines get lower fuel prices too, and the LCCs, who set prices in every market they serve, will keep fares down, meaning UA may be able to get no competitive advantage (or much profit) just because fuel is low. Look what WN is doing...slowly increasing their pressence and pressure on UA in Chicago, Denver, San Francisco....

The idea that fuel prices were making them unprofitable was only a half-truth at best, a total fallacy at worst.

Quoting WorldTraveler (Reply 18):
Let's not jump and down about what CO can do for UA

CO should just angle itself to be ready to pick up a few of UA's desirable assets, buying anything like the whole mess is like buying yourself a case of cancer.

Cairo


User currently offlineSoxfan From United States of America, joined Mar 2008, 862 posts, RR: 0
Reply 21, posted (5 years 2 months 3 weeks 4 days 5 hours ago) and read 5562 times:

Do you think there's any chance of further cuts in service a la US Airways (i.e. removing IFE, charging for drinks) anytime soon to at least partially minimize any future losses?


Pilot: "Request push, which way should we face?" JFK Ground: "You better face the front, sir, or you'll scare the pax!"
User currently offlineUnited1 From United States of America, joined Oct 2003, 5815 posts, RR: 9
Reply 22, posted (5 years 2 months 3 weeks 4 days 4 hours ago) and read 5503 times:



Quoting Cairo (Reply 20):
UA would have to make a billion dollar profit somehow,

They don't have to post a billion dollar profit they simply have to be cash flow positive of at least one billion dollars, the last time UA did that was in 2007 when they generated 2.1 billion in positive cash flow.....which at that time was the most of any US Airline.



Semper Fi - PowerPoint makes us stupid.
User currently offlineFlighty From United States of America, joined Apr 2007, 8198 posts, RR: 3
Reply 23, posted (5 years 2 months 3 weeks 4 days 4 hours ago) and read 5424 times:



Quoting Stitch (Reply 4):
And yet when they didn't have those hedges and oil was in the triple digits, they were getting killed on fuel prices, as well.

Isn't that a pickle and a half!!

Only reason I can think of to hedge..., is to smooth out the boom/bust cycle (to harm profits in good times, help in bad times) so their pilots don't go on a salary-boosting effort when times are "good." Such as 2009... UA pilots won't be asking for a raise will they, since the money fell out the bottom. Pilots may will have to decide whether "they" can pay the "costs" of hedging to have improved stability in their jobs.

Since airlines can't downsize rapidly enough (union contracts), they may do well to hedge to avoid being tazed / zapped by high fuel prices, and tolerate the losses on the flip side.

Either policy... hedge... don't hedge... is good, but fluctuating between, carries with it the chance for blissful success... WN... and devastating failure that could kill an airline.


User currently offlineTexan From New Zealand, joined Dec 2003, 4264 posts, RR: 52
Reply 24, posted (5 years 2 months 3 weeks 4 days 4 hours ago) and read 5371 times:



Quoting Cairo (Reply 16):
I'd be surprised if the $350 million you mentioned they plan to raise will offset their 1Q loss in this economy by much, if at all.

Especially considering Q1 is typically the softest quarter for the airline industry. Even with capacity decreases, we are seeing less flying as corporate travel slows down and individuals fly less. I am very pessimistic on the Q1 numbers as well.

Quoting Cairo (Reply 20):
CO should just angle itself to be ready to pick up a few of UA's desirable assets, buying anything like the whole mess is like buying yourself a case of cancer

Amen. Remember, CO had advanced negotiations with UA last year. Once CO went up and examined UA's books, CO immediately backed off the merger talks. I cannot think of what has changed in that time that would make CO want to purchase UA.

Texan



"I have always imagined that Paradise will be a kind of library."
25 VictorKilo : But with a strong knowledge of UA's books, CO would be in a better position to know which assets of UA would be worth acquiring, and which ones are n
26 Texan : True, in a bankruptcy setting, CO would likely try to poach a majority of UA's strong assets. And if they bought select assets, you are correct, they
27 WorldTraveler : which reduces the amount of assets UA has to pledge as collateral in the event it runs into a cash crisis and has to file BK. UA probably does not ha
28 Mm320cap : Oh yes we will. All the employees will. I don't see why I shouldn't get the same raise that Glenn gave himself.... 40%. I won't even ask for the bonu
29 ItalianFlyer : What amazes me is that the Shareholders and BOD put up with this... I just dont get it. As we speak, the B of A is gutting is management structure in
30 Apodino : People have given Glenn Tilton credit for keeping the company in business. That might not be untrue, but given the bad performance of the company sin
31 TVNWZ : He is in good company since every other COO put in place " boneheaded, moronic hedges." This includes the vaunted Southwest Airlines. WN even mortgag
32 United1 : UA has about 2 Billion worth of free and clear assets at this point, also there is no talk of looking for DIP nor is there any need too... Yuppers, e
33 WorldTraveler : $2B might not be enough DIP for a restructuring if it is needed. Further, UA has put some of those assets in hock in order to obtain cash during the
34 Post contains links LAXDESI : Information from street.com on UA fuel hedges. http://www.thestreet.com/story/10458...sens-ual-loss.html?cm_ven=GOOGLEFI Quotes: United estimated that
35 Exaauadl : Ive noticed the very same thing. There seem to be huge charges every single quarter...Main point is AMR has nearly double the cash UAL has
36 Mm320cap : Three years ago when oil was down from $80 to $51 a barrel, I asked a member of our senior management why we weren't hedging aggressively. I was told
37 United1 : Well when UA filed for BK the last time they used 1.5Billion in assets as collateral for their DIP financing and that was when they were a larger com
38 WorldTraveler : and people should not be so quick to assume that AA is no longer interested in picking up UA's assets just because CO and UA want to develop a deep c
39 Brilondon : What is this thing on these threads about CO and UA merging. I thought that CO was just joining Star Alliance, not merging with UA. I would hate to s
40 FlyDreamliner : After seeing the new UA J product, I think they should axe C, which is barely any better, and focus their energies on getting a competitive price for
41 Flighty : Never thought about that... you would still probably have to "cost" the deferred fuel in the present period, since you "ordered" fuel for future peri
42 VictorKilo : While I wouldn't doubt that AA would be interested in picking up some of UA's assets - IAD, SFO, some of LAX, and slots at NRT - the structure of UA'
43 Cairo : True, but just for this thread let's pick only what seems obvious; just to be purely speculative in the great tradition of this site, in my rank orde
44 Rightrudder : A good simple analogy of economic reality. It can be discussed that commuters may be devaluing mainline through poor service but the distinction of o
45 VictorKilo : Over the short-term, I would place IAD ahead of ORD/LAX and DEN. True, it's close to EWR, but as the overall economy sours at the same time as govern
46 Ual777 : They have 2.3 billion in cash and another 2 billion in assets that they can borrow against. They should be fine. It is also noted that their are on t
47 Cairo : Not arguing with you in normal times - except to say that the banks themselves are getting bailed out and I'm reading in the financial papers that ma
48 United1 : UA hasn't had any issue finding financing on jets over the past year and just closed on a little less then a hundred million in financing this month.
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