From united.com

Third-Quarter Operating Profit of $19 Million, $665 Million Improvement Over Last Year; Excluding Special Charges, Operating Profit of $90 Million

Mainline Passenger Unit Revenue Improves 12% Year-Over-Year

9% Improvement in Mainline Unit Costs Year-Over-Year;
Excluding Special Charges and Fuel, Unit Costs Improve 14%

Maintains Strong Cash Position and Positive Operating Cash Flow


The long awaited report from the last of the majors, and it is good news.


Here is the link to the full press release
http://www.united.com/page/framedpage/0,1449,1376,00.html


[Edited 2003-10-30 18:39:21]

Just made my day, thank you!!!!

I was just on the website, and couldn't find the release in the "press release" area.

Regardless...UAL is CLEARLY on a smooth flight path to emergence from Ch. 11. They have obviously taken the steps necessary to restructure their business in 9 months to post a profit one month ahead of schedule. This will hopefully boost morale further and put a nail in the coffin for those hoping for Ch. 7. Sorry, Continental...just don't see those LHR slots in your future! Ha Ha!

Challenges still ahead:
- ACA situation at IAD
- underfunded pension issue
- Successful launch of 'starfish' in Feb. 2004.

Now, my question is, will they reemerge 3/31/04 or 6/30/04? I would be the target has been moved up to Q1.

andersjt,
great news, but hold on...the anti ual squad is typing as i speak.cant wait for the armchair q.b. to put the spin on this.

Good news around the entire industry as profits arrive for many carriers.

I must admit, I'm surprised that UA is showing a profit. Out of all the majors, it was the one I expected to be the least improved. Of the top three (DL, AA, UA), I expected DL to recover first, but they just reported a loss, didn't they?

Since every US-domestic airline is posting improvements this Q3, I think we can now expect to see some increased orders for all four major a/c manufacturers (Boeing, Embaerer, Airbus, and Bombardier). Maybe the 7E7 and 713 aren't pipe-dreams, after all?

We'll have to wait until Q4 to know for sure...

Uadc8contrail:

As a card-carrying member of the anti-UAL squad, I tip my hat to their management for getting the company back to profitability. Kudos.

[Edited 2003-10-30 18:42:26]

Awsome! I didnt think they'd go under:D

Wow, that's great, surprising news. Congratulations, UAL!

It doesn't rain everyday!

Anders:

You know I'm not "anti-UAL", but let's get the facts straight:

http://biz.yahoo.com/rb/031030/airlines_united_earns_3.html

The operating profit was not $90 million. It was $19 million.

Regardless of which the net loss was $37 million. A loss is a loss, whichever way you spin it.

cheers

mariner

Mariner:

My post is a direct copy from UAL's press release. It would be irresponsible of UAL's Investor Relations to post facts that are not "'straight."

The $19 million operating profit does include special charges; therefore, the $37 million loss would include $56 million in restructuring charges, far less than what they have booked in previous quarters. It would be hard to dispute what the post says, that they are "on track" with the restructuring.

Anders:

I do not dispute that they are "on track", and I am very pleased to see it.

I simply question your statement that they made an operating profit of $90 million, when every press release that I have read says that the operating profit was $19 million.

cheers

mariner

I'm not sure what an operating profit is but it shows $19 million. However, the net lost for the 3rd quarter was $367 million. Either way, it didn't do a thing for shareholders of UALAQ.

So the bottom line is UAL made a profit or lost money for 3Q?

UAL 777 CONTRAIL

Either way, it didn't do a thing for shareholders of UALAQ.

Yes, overall UA lost $367 million -- but you'd have to be a fool to own UAL shares, since they'll likely be cancelled out before the airline emerges from bankruptcy (then new shares will be reissued). But the operating profit is a positive sign.

The very quick, simple answer is that they LOST money. $367m to be exact. The reason is because according to accounting rules, a company MUST record special charges in their monthly reporting, especially at quarter end. Examples of special charges including changes in accounting rules and in UA's case, bankruptcy filing fees, restructuring costs, etc.

Here's where the operating profit discussion comes in, and the $19m referenced above. IF you exclude the special items, and look ONLY at the business operation itself, UAL posted a PROFIT for Q3. This is the key number. Why? Because its shows that the core UAL business is profitable, before taking into account the other items. More importantly, the operating profit shows that costs have come down as a result of efforts made in the past 9 months. In fact, for the past several months, UA has posted an operating profit.

The bottom line here is that UAL has SUBSTANTIALLY reduced their loss through restructuring, with more on the way. They went from a $15/share loss a year ago to $3.50/share this past quarter.

Deep in the press release link that andersjt provided, UA management declared that they expect to meet the DIP coventants for October. This is also critical, because if they do, that means the the NET profit,which will include the special items, will be at least $46m, and therefore making available the 2nd half of the original $1.5b loan package set up in Dec. 2002.

Mariner - the $90 million statement came from UAL's press release.

The loss for the quarter including all restructuring charges was $367 million, not so good, but better than a year ago, and more evidence they are working to get their books in order.

The operating profit of $19 million, or $90 million, however you want to view it is good. Could it be the $71 million in extraordinary items charged against the $90 million are "Starfish" costs? It does show that the airline has or is making changes toward operating profitably in the near term. These are profits that will go to support restructuring obligations that they are taking charges on now.

There is a long way to go.

StevenUhl777 - in my mind, one major obstacle they have to overcome is the damage caused by the bankruptcy. Changes, uncertainties, service inconsistencies and cutbacks have disappointed a lot of United's best customers. Is the task to get them back, or is it their hope that they can build that back with expensive advertising and marketing to new customers? For lack of a better term, what is it going to take for them to get the "luster" back?

I also hope they do not rush their emergence from bk. It may look good to emerge in 1Q04, but for the long-term, that may be too soon.




[Edited 2003-10-30 20:04:24]

Anders:

I agree with everything you say, except this:

At the risk of flogging an exhausted horse, either the operating profit was $19 million or it was $90 million. It can't be both.

Nor do I see how anything, Starfish or otherwise, can be charged against the "operating profit."

Any charges related to Starfish come under the heading of "extraordinary items" - don't they? They have no bearing on how profitable or otherwise the "operational" side off UAL is/was.

Unless UAL and I have very different interpretations of what the term "operating profit" means.

cheers

mariner

I knew they could do it! CONGRATS UAL!!   /   I feel both ways, good and bad!

JASON


[Edited 2003-10-30 20:52:11]

I knew they could do it! CONGRATS UAL!!

Congratulations UAL?! For what, losing $367 million?!

The results are promising but UA still has a ways to go...

I'm glad you said it.

[Edited 2003-10-30 20:49:07]

I know they have a ways to go, that is the reason for my sarcasm. I accidentally posted the spinning smiley instead of the doubtful one! SORRY.

JASON

It is clear that UAL seems like they are on the right track.
They however still have a long ways to go in working things out and improving their product as a whole.
But, things look as if they can only get better!!  

You can edit your post to put the correct emoticon in JA54123.

UAL is recovering from its bankruptcy problems, however it really needs to do more. It just takes time to change such a huge operation. AA is having to realize that also. So I guess my comment above is half joy, half so what big deal--they are still not out of the woods yet.

JASON

Most of the special charges were restructuring cost and as such they were one time expenses. Operating profit means that they earned money on their main business - running an airline. And they actually did - look at the cash flow. Operating cash flow is + $286 million. That means that running their planes with passengers and cargo generated $3 million of cash every day.
The truth is - United is on a right way. If only they continue to go this direction they will emerge. And I hope they will  

Daniel
(public accountant)  

this is like the ugly duckling getting towed by the rest success of the rest of the industry.

I'm a capitalist, and not a fan of bailouts on this magnitude. You loose that much money, and you run out of credit, and your bond rating is junk, then your company should fold.

UA is in no way vital to this country, and their demise would only spread a nice fleet over truely profitable airlines. All this based on short term risk managment by large capital firms. I personally don't feel the worst run business in the industry, in a downturn like this, should ever be propped up like UA was.

George

but you'd have to be a fool to own UAL shares, since they'll likely be cancelled out before the airline emerges from bankruptcy

Yes I agree, some people might be fools to own UAL stock but others of us turned $.50 into $1.05.

IF you exclude the special items, and look ONLY at the business operation itself, UAL posted a PROFIT for Q3.
*****

Steven, This isn't quite right either as the 19 million in operational profit was not including the fact that they are still not paying many of their bills.

J

Artysman - the fact they don't have to pay all the bills now does not mean that these costs are not recorded.

So, do we still think that UA should get a federal loan guaranty?* The standards under the law are that the airline must be unable to get credit elsewhere on reasonable terms, but there needs to be a very low likelihood of default. Is UA too strong or too weak for this help?

(Remember, Spirit Airlines was denied, and they are probably glad they were denied-- they remain profitable and growing without government subsidization).

-----------------------------------
*The government does not make the loan, but provides a guaranty of payment to support a loan made by another party (generally 90%). So, the government's involvement allows a much lower risk level and therefore a lower interest rate. If the loan goes into default, the government pays off the lender (90%). So, it is a subsidy in that it lower's UA's cost of funds. However, it only becomes a "bailout" if the loan goes bad; and at that point it is a bailout for the lender, not the airline.

[Edited 2003-10-30 21:51:37]

Artysman - the fact they don't have to pay all the bills now does not mean that these costs are not recorded.
*******

I know that they are of course recorded, but as they items that are titled "under consideration" as they are currently being negotiated, they do not go into the cost or debt column in their report, therefore as I was saying, the 19 million would need to have these leases, landing fees and various other things included to be an accurate figure

J

It's good to see a slight improvement, but UAL still has a very long path ahead of them.

Let's also remember that UA has made no pension contributions and is not paying on unsecured debt while in bankruptcy. Life in bankruptcy can be comfortably unlike life in the real world.

UAL should be showing marked improvement in their operating performance given the massive labor cost cuts that their employees provided.

To all you that still want to see UAL fold let me remind you that 100,000 people will be out on the street. My self and many other A.NET members included in that number.

To all you that still want to see UAL fold let me remind you that 100,000 people will be out on the street. My self and many other A.NET members included in that number.

You have got to be kidding me. First off, I don’t wish for UA’s liquidation. In fact, I feel quite the opposite. Yet if it were to happen, SFO, DEN, ORD and IAD aren’t going to sit empty; AA isn’t going to be the only USA-flag carrier into LHR; NW isn’t going to be the only carrier dominating the Pacific (although I’m sure some complications will arise). The reality is, the vast majority of UA’s employees will be able to find alternate work rather quickly – and many senior employees already operate other ventures on the side and can afford to retire, anyway. Certainly many of these people will likely take pay cuts – but many analysts (and even NW and CO’s CEO) believe UA letting its wages get out of control is a big reason it went bankrupt. While I don’t wish for any harm to UA, if it can’t survive on its own without more bailouts, it deserves to vanish. There will always be reliable air transportation -- let's hope UA's among the airlines who continue to provide it.

[Edited 2003-10-30 23:56:28]

Spin, Spin, Spin...

Bottom line. THEY LOST MONEY! Bye-Bye UAL!

Bottom line. THEY LOST MONEY! Bye-Bye UAL!

You may use bottom line for your finance management whn you're newspaper deliverer. Huge corporation as UAL is little more complicated than just bottom line. Fortunately people whi manage UAL understand it.

Bottom line. THEY LOST MONEY! Bye-Bye UAL!
*************

Now if you listen to UAL777Contrail, he'll tell you that I am the biggest anti-UAL person on here, but I ...I.. .. .. I need to agree with Contrail, UAL are going to be ok. Loss or no loss, they have slowed things to a manageable level, and have enough reserve to navigate the rest. Well done to UAL

Jeremy

[Edited 2003-10-31 04:14:34]

I might as well add my two cents. Thanks to the dedication, hard work and sacrifices of our employees we have been able to accomplish what just a few months ago seemed impossible. Though recent management changes have had their effect the real credit goes to our employees. These results are an indication of a job well done. I can safely speak for everybody at WHQ by expressing our sincerest thanks.

Skeptics remain; we are not out of hot water though the worst is behind us. Challenges continue to face United. Employee pensions and the ever evolving science fiction saga with ACA included. The winter season will be difficult no doubt but based on the significant improvements of late, come next spring we will emerge a stronger, leaner competitor, maintaining the key elements of the United system. Anyone who continues to maintain the position that we face Chapter 7 bankruptcy simply doesn’t have their eyes open to the facts. Things continue to look brighter each day.

ElkGrove


[Edited 2003-10-31 04:30:28]

Bottom line. THEY LOST MONEY! Bye-Bye UAL!
---------------------------

Common sense and a regular read of the WSJ would tell you that companies have consistent loosing quarters all the time, and continue to stick around. I agree with most that have posted here, UAL has made great strides, and while they have much to still undertake, they are better poised to face the remaining hurdles now. Way to go UAL!

The reason United "made" more money than Delta is because Delta is not in bankruptancy and is actually paying all of its bills. United is not. When they can emerge from bankruptancy and actually pay for everything, instead of having it deferred, then I'll be convinced they're gonna survive. This is better news but not exactly great news.

MD-90: United is not paying all bills, but they are REPORTING THEM PER ACCOUNTING STANDARDS!!!! The results you see reflect ALL expenses...and as andersjt stated in another post, UAL is one of the closely watched companies out there, simply because they're in Ch. 11. Think about it...they have to have their results audited constantly, and always have to report to a court.

ElkGrove: Ahhhhhh....the voice of reason....thank you! I have full confidence in UAL. Once I get my bonus in February, $750 of it (well, more if you guys raise the fare) will go straight to UAL in the form of my IAD-LHR-IAD roundtrip for next summer!!! I will book with full confidence in UA. I mean, they've performed the impossible, led by dedicated employees and a CEO that people wrote off long ago. Kudos to CFO Jake Brace...I want his job one day!!!!! After you, of course... 

BoingGoingGone and BlatantEcho: Wow...if there were EVER candidates for Accounting 101, and every business-related course following it, it's the two of you.... niether of you really truly understand ANYTHING about business, do you? That "spin...spin...spin.." you talk about? That's based on well-educated, well-founded analysis of all financial statements. Why is it that several posters here who have a hell of a lot more financial background than I do (say, andersjt, elkgrove, and danny) keep saying the same that I do...that while UAL continues to face big challenges (don't all major network carriers at this point?) that solid progress has been made and that they will be viable for the long term? I'll bet both of you said the same thing about AA last Spring when they were on the verge of Ch. 11, too. Yet, AA, like UA, has made painful cuts and tough decisions, and now they're on the upswing.

Arrrgghhh...I sound like a broken record...

Not a broken record. Just a poster boy for UAL.

artyman,
Thanks for taking the wind out of my sails. Lets not make this a habit of agreeing.
 

UAL 777 CONTRAIL

Honestly, these results look promising. They might even suggest that United is on the right track. Still, I remain non-commital about United's prospects for various reasons.

I've expounded on some of those reasons in various threads. Here are just some random thoughts about their 3rd Qtr. financial report.

Unit costs. First of all, United's mainline unit costs are still greater than AA's, its closest network competitor, $9.88 compared to $9.43. How could that be? AA's wage and work rule concessions supposedly totaled $1.8 billion, UA's supposedly $2.5 or $2.6 billion. This doesn't make sense. With those kind of numbers, one would have expected UA's unit costs to be below those of AA by now. Now, I am beginning to see why Leo Mullin, Delta's CEO, keeps using AA's pilot costs as the benchmark and not UA's costs. Could Leo Mullin know that AA negotiated more cost-effective contracts with its employees than United? Just something to think about.

Accounting for all Operational Expenses. I think someone is confusing the "Statements of Consolidated Financial Position" with the "Statements of Consolidated Operations." The former accounts for all of UAL's liabilities, pre- and post-petition, and any subsequent adjustments to those liabilities. The latter accounts for all of UA's actual revenues and expenses for the current quarter and/or reporting period. UA can meet the reporting standards, mentioned by StevenUhl777, by listing certain expenses as liabilities in their "Statements of Consolidated Financial Position." As long as it never actually incurred the expense in the current quarter, however, I don't see how a payment it never made, that United may in fact be contesting as an unsecured debt, would also appear in the expense accounting of their "Statements of Consolidated Operations." That just doesn't make sense, given the purported objectives of each "Statement." In that sense, MD90 may be closer to the truth than StevenUhl777.

What lends credence to MD90's claim that certain bills (e.g., payments on unsecured municipal bonds) are not being reflected in UA's operational expenses is a note in UA's own 3rd Qtr. financial report:

"Facilities

        At September 30, 2003, there were approximately $1.7 billion in special facilities revenue bonds ("municipal bonds") outstanding that were issued on behalf of United to build or improve airport-related facilities. The Company leases facilities at airports pursuant to lease agreements where municipal bonds funded at least some of the airport-related projects. In connection with the financing agreements entered into by United with the issuance of these bonds, we are required to make payments in amounts sufficient to cover the interest semi-annually, with principal payable upon maturity.

         Under the Bankruptcy Code, we are not permitted to make payments on unsecured pre-petition debt without first notifying our creditors and receiving the approval of the Bankruptcy Court. Since we have been advised that our municipal bonds may be unsecured (or in certain instances, partially secured) pre-petition debt, we cannot make payments on these bonds without first meeting the requirements outlined above. For this reason, we have classified all of the municipal bonds on our balance sheet as liabilities subject to compromise.

         Section 365 of the Bankruptcy Code requires that we meet all of our post-petition obligations for unexpired leases of non-residential real property in a timely manner. We believe that we are in compliance with all payment obligations under our lease agreements relating to airports where we have not rejected our lease and have municipal bonds outstanding. However, we have not made and do not intend to make debt service payments or any other payment on account of any of the municipal bonds issued on behalf of the Company relating to domestic airport financings. As a result, under certain of our airport lease agreements, we may be considered in default due to non-payment of the debt and therefore subject to the default provisions of our lease agreements with the airports. Possible consequences could include loss of our status as a signatory airline (resulting in increased rents and landing fees) and loss of our exclusive space agreements.

        We have taken a number of steps to reduce the risks associated with non-payment on the municipal bonds. On September 18, 2003, we filed a complaint for declaratory judgment for all seven municipal bond issues relating to our facilities at the Chicago O'Hare International Airport ("O'Hare"), seeking, among other things, a declaration that a certain cross-default provision in the O'Hare airport lease is unenforceable. At this time, the City of Chicago has not answered the complaint.

        Previously, we filed four complaints for declaratory judgment and corresponding motions for temporary restraining order concerning municipal bonds issued for facilities at the Denver International Airport, the New York City - John F. Kennedy International Airport, the San Francisco International Airport, and the Los Angeles International Airport. In each case, we are seeking clarification of our obligations under the applicable municipal bonds, and the protection of our rights concerning related airport lease agreements at the applicable airport until the Bankruptcy Court decides the merits of the complaints.

        Subsequently, the Bankruptcy Court entered an order that requires each of the defendants in these actions to give us a 15-day notice and cure period before taking any action to terminate any of our rights concerning these airport leases until such time as the Bankruptcy Court enters final orders on United's declaratory judgment actions. The Bankruptcy Court has conducted a hearing on motions for summary judgment filed by various parties.

         Pending the Bankruptcy Court's ruling, we are unable to predict what, if any, action might be taken in the future by either the bondholders or the airport authorities as a result of UAL's failure to pay these obligations as contractually required. However, we believe that the Bankruptcy Court's orders substantially reduce the risk of any declared default by providing us an opportunity to make required payments and preserve our rights under the leases."

I quote this passage from UA's financial report for two purposes. First of all, because it attests to what MD90 is saying in effect. Even though United is accounting for all liabilities in the pre/post-petition portions of its "Statements of Consolidated Financial Position," it does not follow that the payments on some of these liabilities are showing up as expenses in its "Statement of Consolidated Operations." Consequently, UA's current operational expenses, especially for airport rental charges, may not be truly representative of its actual expenses upon emergence from bankruptcy.

Second of all, I mention this passage because in it United divulges one of its biggest threats at the moment, the possibility that it would be forced to give up its gates at key airports if it were found in default of its lease agreements. We know who would want some of those gates at Denver? Southwest keeps growing at LAX. I wonder how many other LCC's are looking at these gates and smelling blood. More than one Asian carrier could use a new cargo facility at LAX. At JFK, BA would be more than eager to replace UA with one of its oneworld partners. Like the dispute with ACA, this should be interesting to watch.

ladevale,
Just a guess, you don't have many friends right? Your posts OF ANTI-united are so obvious, they have the potential to be lame and boring, you aren't our CEO and your ARM CHAIR ceoing has got to have boundaries. You claim that the company isn't out of the woods and numbers can be so misleading but we have gotten better as each month passes, we are still here!!! Not even the great ladevale can predict our demise, let it go. You need to find another hobby that you can actually make a little sense.

UAL 777 CONTRAIL