Ua Fuel Agreement

[UnitedChicago]

This is good news...

UAL Corp Seeks Court Approval Of Fuel Supply Agreement

By NICHOLAS P. BRAUDE

Of DOW JONES NEWSWIRES

WASHINGTON -- UAL Corp. (UALAQ), the parent of United

Airlines, is seeking bankruptcy court approval of a jet fuel supply agreement

with a unit of Morgan Stanley (MWD), according to court papers obtained by

Dow Jones Newswires.

In a motion filed in bankruptcy court late Monday, UAL said the

proposed fuel supply pact would call for Morgan Stanley Capital Group Inc. to

supply 100% of the airline's fuel requirements at 35 selected airports in the

U.S. At some airports, Morgan Stanley Capital Group would perform all

pipeline supply requirements at cost, take on the carrier's local supply

contracts and resell the fuel at cost.

Also, the motion said, the Morgan Stanley subsidiary would finance

all third-party fuel sales and handle all fuel trades.

UAL and Morgan Stanley Capital Group would share all the profits from

the sale of jet fuel to other carriers and from fuel trades with non-airline

third-parties, the filing said.

In exchange, UAL would buy fuel from Morgan Stanley Capital Group,

and would negotiate supply contracts and third-party sales contracts on

behalf of the Morgan Stanley unit. The airline would also prepay Morgan

Stanley Capital Group daily for its projected fuel purchases.

The U.S. Bankruptcy Court in Chicago will consider the proposed

agreement at a hearing Sept. 19.

The supply agreement, which would have a three-year term, "will

ensure a ready supply of jet fuel at a competitive cost," the motion said.

According to UAL, the fuel supply agreement would result in annual savings in

estimated savings of $5 million a year.

The airline began in May to solicit proposals from third parties for

a jet fuel supply pact.

UAL has a fuel supply strategy through which it attempts to minimize

its fuel costs, ensure the integrity of its fuel supply and leveraging its

fuel infrastructure by selling fuel to other airlines based on its own

inventory and pipeline space, the motion said.

In 2002, UAL had total fuel purchases of roughly $2.8 billion,

according to the filing Monday.

UAL said in the motion that the carrier's fuel supply strategy

requires $250 million in working capital at any given time to prepay for fuel

purchases and maintain inventory. Also, the filing said, UAL faces a credit

risk from third-party sales and the trading environment for fuel can be

volatile.

The motion said UAL determined Morgan Stanley Capital Group's

proposal was the most beneficial after inviting about 20 parties to submit

partnership offers.

UAL filed for bankruptcy protection Dec. 9, 2002, listing assets of

$84.3 million and debts of $126.6 million as of Sept. 30, 2002. Subsidiary

United Airlines listed assets of $22.73 billion and debts of $21.48 billion

as of the same date in another Chapter 11 filing Dec. 9.

-By Nicholas P. Braude; Dow Jones Newswires; 202-862-1355;

[email protected]
Updated September 9, 2003 3:20 p.m.

 

[ual06]

Some say Tilton and group isn't doing anything. Appears to me that this may a tip of the iceberg of what may really be going on. Perhaps Tilton decided to serve a little "drink" to those whose thirst for knowledge is insatiable.

 

[atabuy]

Some say Tilton and group isn't doing anything. Appears to me that this may a tip of the iceberg of what may really be going on. Perhaps Tilton decided to serve a little "drink" to those whose thirst for knowledge is insatiable.

Hasn't Ual always had some sort of hedge against fuel costs?
Do they have to use a third party now because of BK.?
If so, is this really tremendously good news. Is Ual turning some type of corner? I am sure they did well in hedging on their own before.

Don't take me wrong here, because I do want to see Ual prosper. I just think that sometimes the spin on stuff is just pr. Not that much to get excited about.
I was always very positive about Ual, but I have become more skeptical as time has progressed with no real good ideas coming out of WHQ.
At least not anything that will give Ual a chance in a bad economy. Everyone can make money in good times. They need to do a lot more to earn my respect and trust again.

 

[UnitedChicago]

atabuy:

United did not have any hedge in place for 2003 due to the uncertainty of their financial condition and threat of ch11.

This was obviously a big issue/concern during the Iraq war.

SO...this is indeed very good news.

 

[atabuy]

atabuy:United did not have any hedge in place for 2003 due to the uncertainty of their financial condition and threat of ch11. This was obviously a big issue/concern during the Iraq war. SO...this is indeed very good news.

In 2002, UAL had total fuel purchases of roughly $2.8 billion,

Even with 5 million as a profit, pitted against the staggering sum of 2.8 billion seems like not such a great savings. Especially for a 3 year contract.
I don't know if this is great news or not. I would have to see what other options Ual has.
As I said before, this seems like a pr deal and nothing more. Maybe the nay sayers have the skinny, like the loan approval board did, way before we ever accepted how bad of a situation we were in.

 

[UnitedChicago]

I really don't see how this was PR. This is a filing before the judge - not a press release.

Maybe $5 million in savings is small - but it's $5 million that they didn't have. Every dime counts.

 

[FWAAA]

Even with 5 million as a profit, pitted against the staggering sum of 2.8 billion seems like not such a great savings. Especially for a 3 year contract.
I don't know if this is great news or not. I would have to see what other options Ual has.
As I said before, this seems like a pr deal and nothing more. Maybe the nay sayers have the skinny, like the loan approval board did, way before we ever accepted how bad of a situation we were in.

All this deal represents is a financing mechanism for fuel purchases. It frees up the $250 million of capital referred to in the story. Note the part about "prepayment" for fuel. This deal means that UAL can now buy fuel like any other non-bankrupt airline (without having to pay cash at the pump). The $5 million in savings probably results from the diminished amount of capital that will be tied up in fuel.