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United Postpones Filing

Tue Aug 02, 2005 11:47 pm

United Agrees With Creditors' Committee Not to File
Plan of Reorganization and Disclosure Statement Now
When the company first discussed the expected timing
for filing the Plan of Reorganization and Disclosure
Statement, we proposed a very aggressive exit
schedule. At the request of our Creditors'
Committee, United today agreed to delay the filings.
The Creditors' Committee is a very important
stakeholder and has a major voice in the exit

Both the company and the Creditors' Committee agreed
to pursue this revised timeline in order to provide
an additional opportunity to continue collaborating
on the extensive, complex documents that are part of
the overall restructuring process. Both parties
agree that this approach and timing can help
facilitate an even smoother exit process.

We now expect to file our Plan of Reorganization and
related materials in approximately a month and
expect to have additional details on exit timing at
that point. While this means that our exit from
bankruptcy will be later than ideally expected, it
will still generally be within our overall exit

Even with this new timing, we are continuing to move
forward on an aggressive but achievable path to
exit. By investing the additional time now, we
believe that this will ultimately result in a better
outcome for employees and all of our key
Posts: 2446
Joined: Wed Oct 06, 1999 5:56 am

RE: United Postpones Filing

Tue Aug 02, 2005 11:57 pm

Interesting that its United's creditors that don't want it to exit bankruptcy just yet. United was ready to start the process this month. It's the creditors that want more time to review the exit strategy. For all of the United critics on this forum, don't blame the delay on United any longer.

Also, a friend at United sent me this from their employee website:

"Below are some quotes
from analysts about the company's financial
performance, as reported by some of the major media
outlets in Chicago.

The Chicago Tribune reported, "When it leaves
bankruptcy protection, United will 'have the right
cost structure and already has a powerful franchise
with good worldwide name recognition,' Ray Neidl,
airline analyst with Calyon Securities, said

A published report by the global investment banking
and securities firm Goldman Sachs said United "ended
the quarter on a strong note in revenues and
earnings," is "still driving down costs" and
"running one of the more reliable airlines over the
last 12 months."

Rather than focusing on the 1.4 billion dollar loss
as many media reports did, analysts recognized
United's significant progress, particularly given
the uncompetitive position the company was in three
years ago. So why are analysts encouraged, given
United's large net loss?

Analysts focused on United's operating earnings, and
set aside restructuring charges, which are the
correct measure to look at to understand the
underlying strength of United's business. Despite
the fact that fuel costs were 262 million dollars
higher than in the second quarter of last year,
United earned an operating profit of 48 million
dollars -- in a difficult industry environment.
United's mainline unit revenue was up 5 percent, and
mainline costs, excluding fuel, were down 3 percent,

Only three major network carriers -- United,
American and Continental -- reported an operating
profit this quarter. Delta and Northwest reported
operating losses.

To put United's results in perspective, United
posted a net loss of 26 million dollars, excluding
special and reorganization items, for the second
quarter. This compares to a net profit of 58
million dollars at American, net profit of 53
million dollars at Continental, a net loss of 684
million dollars at Delta and a net loss of 279
million dollars at Northwest (all excluding special
and reorganization items).

The reorganization items that drove the large net
loss will be resolved as part of the bankruptcy
process, even though United is required to include
them in its accounting at this time, and the company
expects they will be settled for a minor fraction of
the amount of the charges.

Reports of analysts represent the views of the
analyst and not those of the Company. Please note
that the Company does not endorse the analyst
reports referred to above and takes no
responsibility for the accuracy of the information
included in the report." has many forums. It has spell check and search functions. Use them before posting!
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Joined: Thu Nov 20, 2003 7:02 pm

RE: United Postpones Filing

Wed Aug 03, 2005 1:46 am

While I agree in principal that one must set aside the "non operating costs" (the bulk of which are the reorganization costs), United did make money in the 2Q from operations. However, when looking at their operating performance, there are still things that trouble me about the performance of the carrier now, and how the carrier will operate structurally out of bankruptcy.

The basis to determine how any airline is functioning is looking at system costs at a unit level. For the three months ended June 30, GAAP mainline operating CASM increased from 9.87 cents to 10.50 cents (+6.4%). It must be noted, however, that absent fuel expenses, their net CASM droped from 7.75c to 7.53c (-2.8%). While this is a good number, it is an unrealistic one. This assumes that fuel is a zero sum in the equation and we know that fuel is never a zero sum (in fact quite the opposite).

CASM for the six month period increased from 10.04c in 2004 to 10.39c in 2005 (+3.5%) while net CASM decreased from 7.93c to 7.63c (-3.5%).

Gross RASM grew from 10.87c to 11.22 cents in the 2nd qtr (+3.2%) and for the six month period decreased from 11.07 cents to 11.03 cents (-0.4%). Again, if we compare net RASM for 2nd quarter at 9.38c vs. 8.94c (+4.9%) and for six months ending June 30 at 8.93c vs. 8.73c (+2.3%), one could say that United has increased its revenue; however, on a net basis, it would still be losing money from operations.

However, since GAAP revenue is used to determine operating performance, United did grow GAAP RASM faster than GAAP CASM in 2nd quarter, hence the $48M operating earnings. Considering the fact that they carried fewer passengers in the three months during which they achieved this operating return, they did this on increased yield, which is even better news for them. This means they are starting to get some of their premium passengers back.

The bigger problem, however, is that they have been steadily losing passengers for the last six months. Of course, they have been cutting capacity in the domestic markets. Capacity cuts have been larger than passenger declines, therefore it is likely that the passenger losses have been as a result of the capacity cuts.

Now, lets take a breath, there was a lot of analysis in those numbers....

The problem with capacity cuts is that those passengers go somewhere else. All the LCCs and American and Continental have seen significant growth in passengers in 2005, especially on routes in which they compete with United.
Frontier is having its best year ever at Denver.

The question becomes will UA get those passengers back? Not unless they grow capacity, which means they will have to increase costs to grow the capacity, which means if they cannot increase yield at the same time, they will be right back where they started.

I promised this forum a business plan for UAL that I would publish on for some time. It is now complete; I have sent it to a couple of investors for their review. Until I have heard from those investors, I cannot publish the plan on Once I have heard from those investors, then I can move forward and publish parts of the plan which are not confidential in nature. I am hoping to hear back soon from those investors.

However, with news today that United has pushed back their reorganization date at the creditors request, it seems increasingly unlikely that the court will allow outside bidders to bid on UAL, which would render the entire process mute. If the creditors are working with United, then it would seem that the creditors have sound reason to believe that what UAL management has done to reorganize the airline has merit, even though we may not believe it is true.

It is my professional opinion that United will not be able to compete with the JetBlues and Southwests in this country with the current organization of its fleet. It cannot put up a product that can pull people away from those carriers.

On the international scene, they do not have a competititive airline product close to that of the best international carriers of the world, especially in Asia. To Europe, there are many other better choices, some of which are in Star Alliance. United will have to take significant steps in capital spending to improve its International Product, especially in F and C and rework Y class to not be a cattle car.

Until then, United will just be the same, until the next economic downturn. Only the next one will be fatal.

Let's just hope better minds will prevail this time.

David L. Lamb, fmr Area Mgr Alitalia SFO 1998-2002, fmr Regional Analyst SFO-UAL 1992-1998
Posts: 229
Joined: Sat Jul 23, 2005 9:17 am

RE: United Postpones Filing

Wed Aug 03, 2005 1:54 am

They're going to be merged into CAL.

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