Big loss for United

CHICAGO (Reuters) – UAL Corp., the bankrupt parent of United Airlines, on Friday reported the biggest quarterly shortfall of any major U.S. air carrier as the war in Iraq (news – web sites) discouraged travel and raised fuel costs.

The $1.3 billion net loss topped that of rival AMR Corp. (NYSE:AMR – news), parent of American Airlines, which posted a $1 billion first-quarter loss last week and narrowly averted bankruptcy for the third time after winning wage concessions from labour.

“It could have been a lot worse, which is the good news. The bad news is, it is not a lot better,” said Richard Bittenbender, senior credit officer at Moodys Investors Service, of UAL’s results.

UAL (OTC BB:UALAQ.OB – news), which filed the largest bankruptcy in U.S. airline history in December, said its loss was $14.16 per share, compared with a loss of $510 million or $9.22 per share a year earlier. Operating revenue fell to $3.18 billion in the quarter from $3.29 billion a year earlier.

“The first quarter was particularly difficult, given travellers’ concerns about the conflict in Iraq, the weak economy and a fierce low-fare environment, as well as speculation about our company’s future — speculation that is now abating,” said Chief Executive Glenn Tilton.

Others agreed with Tilton’s assessment that while the first-quarter numbers were pretty bleak, fears of outright liquidation are lessening.

“UAL posted an unexpectedly weak Q1, but there are definite signs of light at the end of the tunnel,” said Lehman Brothers analyst Gary Chase.

Chase cited big labour concession packages just approved by a bankruptcy court, forthcoming government aid and falling fuel prices as factors that now tip the scales in favour of an eventual successful exit from bankruptcy.

WAIVER WATCH

United said it ended the first quarter with $1.6 billion in cash, of which $644 million was restricted for payment of certain obligations. Its cash burn rate from operations was about $2 million daily during the first quarter, but double that excluding $92 million drawn on its DIP loans.

UAL’s debtor-in-possession lenders, who put up $1.5 billion in loans for the restructuring effort, are Citigroup Inc. J.P. Morgan Chase & Co Inc., CIT Group Inc. and Bank One Corp. If UAL cannot meet the cash-flow requirements set up in the agreements, the institutions must vote to allow the covenants to be waived.

UAL said both domestic and transatlantic bookings have improved. But the company’s Pacific operations, which account for a big chunk of revenue, have been suffering due to Severe Acute Respiratory Syndrome, or SARS (news – web sites). The airline has substantially pulled back flights to the region.

United, based in Elk Grove Village, Illinois, said it expects capacity for the balance of the year to be lower than previously announced, but did not give a figure.

It said capacity will be down 14 percent for April and 20 percent for May. Capacity is measured by available seat miles, or the number of seats available on aircraft times the number of miles flown.

In a move critical to emerging from Chapter 11 protection, United on Wednesday secured court approval for labour cost cuts of $2.56 billion per year over the next six years, which will substantially lower its cost per available seat mile.
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Still with cuts in expenses it is still a hell of a loss.