UAL Corporation Reports Second-Quarter 2005 Results
Thursday July 28, 11:04 am ET
Second-Quarter Operating Earnings of $48 Million, a $41 Million Improvement Despite $262 Million Higher Fuel Expense
Mainline Passenger Unit Revenue up 5 percent
Mainline Unit Costs Up 6 percent, Driven by Higher Fuel Costs; Excluding Fuel, Mainline Unit Costs Down 3 percent on 3 percent Lower Capacity
Predominantly Non-Cash Reorganization Items of $1.4 Billion Result in Net Quarterly Loss of $1.4 Billion
Excluding Special and Reorganization Items, Net Loss is $26 Million
CHICAGO, July 28 /PRNewswire-FirstCall/ -- UAL Corporation (OTC Bulletin Board: UALAQ - News), the holding company whose primary subsidiary is United Airlines, today reported its second-quarter 2005 financial results.
UAL reported second-quarter operating earnings of $48 million. Excluding an impairment charge of $18 million for regional aircraft, operating earnings were $66 million, $59 million better than the $7 million reported in the same quarter last year, despite fuel expenses $262 million higher in 2005 than in 2004. UAL reported a net loss of $1.43 billion, or a loss per basic share of $12.33, which includes $1.39 billion in reorganization items. Reorganization items include a number of large non-cash items: curtailment and settlement losses of $602 million related to the Pension Benefit Guaranty Corporation's (PBGC) takeover of the company's defined benefit pension plans for ground employees, management and public contact employees, and flight attendants, $212 million in charges related to the rejection of aircraft and $509 million in contract rejection charges. These reorganization items are expected to be resolved in the bankruptcy process and settled for a minor fraction of the amount of the charges. It is common for the results of operations of companies progressing through Chapter 11 to be impacted by non-cash charges related to their reorganization, especially as restructuring work nears completion. Excluding the special and reorganization items, UAL's net loss for the second quarter totaled $26 million.
"We now have the foundation in place that enables us to continue to build a much more competitive enterprise," said Glenn Tilton, United's chairman, CEO and president. "We have reduced United's costs, we are posting industry- competitive revenue performance and our employees are delivering excellent operational performance. Although the harsh economic environment, including very high fuel costs, presents difficult challenges for the industry, United's restructuring has earned us the opportunity to compete for a place among the leading network carriers."
United's Restructuring Builds Momentum towards Exit
In the second quarter of 2005, United achieved significant milestones in its restructuring activities. As part of the recent restructuring efforts, United:
-- Achieved consensual labor agreements with the Aircraft Mechanics
Fraternal Association (AMFA) and the International Association of
Machinists and Aerospace Workers (IAM);
-- Reached agreement with the Pension Benefit Guaranty Corporation
(PBGC) on the necessity of taking over the company's defined benefit
pension plans and put in place replacement retirement plans for all
labor groups, except the Association of Flight Attendants (AFA);
-- Amended the DIP agreement to increase the size of the DIP facility
from $1 billion to $1.3 billion, extended loan maturity to December
30, 2005, and lowered the interest rate by 25 basis points;
-- Proposed a schedule with the Bankruptcy Court to file the Plan of
Reorganization and exit in the fall.
"Our restructuring is progressing well as we continue to put in place the important elements to increasing competitiveness. The amended DIP facility was substantially over-subscribed, despite an increase in size and a reduction in the interest rate. This clearly reflects the financial community's recognition of the progress we have made," said Jake Brace, United's executive vice president and chief financial officer.
Revenue results
Results for the second quarter of 2005 reflect a 3 percent reduction in system capacity compared with the same period last year. During the quarter, mainline passenger unit revenue increased 5 percent and yield increased 3 percent, compared to second quarter last year. System load factor increased 1 point to 83 percent, as traffic decreased 1 percent.
"United is delivering industry competitive revenue performance and we are pleased with the results of our 2005 capacity reallocation," said John Tague, executive vice president marketing, sales, and revenue. "United is determined to be an industry leader in revenue performance. We believe the ongoing transformation of our sales force, continuing improvements in revenue management and recently enhanced marketing initiatives will move us steadily in that direction."
Besides United's reallocation of aircraft capacity to international markets, the company has been testing further optimization of its domestic schedule. United is pleased with the initial results. During the second quarter, both initiatives contributed to an increase in fleet utilization of 7 percent. As a result, the company reduced the number of aircraft in its fleet by 13 percent, while reducing system available seat miles by only 3 percent.
Operating Expenses
Largely driven by fuel, mainline operating expense per available seat mile was up 6 percent from the year-ago quarter on a 3 percent decrease in capacity. Excluding the aircraft impairment charge, UAFC, and fuel, mainline operating expenses per available seat mile decreased 3 percent. For more information on the impairment charge, see note 3. For more information on UAFC, see note 4.
Salaries and related costs were down 13 percent, or $156 million, primarily reflecting recent labor and management cost reductions and a 7 percent reduction in manpower. Fuel expense was $262 million higher than in the second quarter 2004. Average fuel price for the quarter was $1.71 per gallon (including taxes), up 45 percent year-over-year.
The company had an effective tax rate of zero for all periods presented, which makes UAL's pre-tax loss the same as its net loss.
Cash
The company ended the quarter with an unrestricted cash balance of $1.7 billion, and a restricted cash balance of $968 million, for a total cash balance of $2.6 billion. The unrestricted cash balance increased by $295 million during the quarter.
Subsequently in July 2005, the company added an additional $310 million to its unrestricted cash balance by utilizing the amended DIP facility.
Operations
In the most recent data available from the U.S. Department of Transportation, United was ranked Number 2 in on-time performance among the seven major network carriers for the 12 months ending May 2005. In addition, employee productivity (available seat miles divided by employee equivalents) was up 4 percent for the quarter compared to the same period in 2004.
"United's improved productivity is a credit to the dedication and resilience of our employees. They have continued to deliver the reliability and service our customers expect during what could have been a very distracting period in our restructuring," said Pete McDonald, United's chief operating officer. "While our schedule optimization has improved asset utilization, we continue to believe significant benefits are available throughout United's operations by reducing aircraft turn times, reducing actual block time performance, expanded de-peaking of hubs and major stations, and reengineering our use of airport facilities."
Outlook
United expects third-quarter system mainline capacity to be down about 5 percent year-over-year. System mainline capacity for 2005 is expected to be about 3 percent lower than 2004.
The company projects fuel prices for the third quarter, including taxes and excluding the impact of hedges, to average $1.83 per gallon. The company has 6.5 percent of its expected fuel consumption for the third quarter hedged at an average of $1.29 per gallon, including taxes.
In the third quarter, the company expects to recognize other large non- cash reorganization items as we move toward exit from bankruptcy.
June Monthly Operating Report
UAL today also filed with the United States Bankruptcy Court its Monthly Operating Report for June. The company posted a $133 million operating profit for June. Mainline unit revenue improved 7 percent compared to same period last year. UAL met the requirements of its debtor-in-possession (DIP) financing.
http://biz.yahoo.com/prnews/050728/cgth035.html?.v=21
Not as bad as NW or DL, but still no net earnings (excluding extraordinary items) even though the pensions have been dumped and the employees have given and given and given. If UAL can't turn a profit in the second quarter (when CO and AA managed to do so), then when will UAL be able to show a quarterly profit?
. Have fun folks - I'm stayin out of this one.
