United Airlines Parent Posts Worst-Ever $3.2 Billion Loss for 2002

January 31, 2003

CHICAGO — United Airlines' parent company reported a record $1.5 billion loss for the fourth quarter Friday, punctuating an abysmal year in which it descended into bankruptcy.

UAL Corp. (UAL) lost a worst-ever $3.2 billion for the year, accounting for roughly one third of the industry's combined losses. Only American Airlines did more poorly, spilling $3.5 billion in red ink in 2002.

If United, the world's second-largest carrier, does not turn its situation around quickly, analysts say it risks losing critical Chapter 11 financing and increases the possibility of liquidation.

The entire industry has been in crisis since the Sept. 11, 2001, terrorist attacks compounded existing problems from an economic downturn, and recovery prospects remain murky. Major U.S. airlines have racked up $3 billion in losses for the fourth quarter and $9 billion for all of 2002. US Airways, which is also in bankruptcy, is expected to report its results next week.

CEO Glenn Tilton said United did everything within its control in 2002 to reduce its industry-leading costs and that more "difficult but critical" changes will be made through the bankruptcy process. He has not yet disclosed details of the company's blueprint for becoming leaner and profitable again, pledging only that United will "compete aggressively" in 2003.

That said, the carrier expects another "significant" loss during the first quarter because of lackluster demand from business travelers and weaker international bookings, especially in the Pacific region, a long-time strength for United. A war in Iraq also would worsen the airline's predicament.

"This was the quarter when they were sliding into bankruptcy, so it's not surprising that the results are pretty dismal," said Philip Baggaley, airline analyst for Standard & Poor's Corp., calling the fourth-quarter numbers "predictably horrendous."

He said United's operating performance this quarter will be key in determining whether it meets its first big benchmark in bankruptcy on Feb. 28. The banks providing United's bankruptcy financing could demand that United repay $700 million already provided to it if it hasn't shown strict, specific cash-flow improvement by that date.

Baggaley said it's difficult to gauge whether United is on track to meet the requirement. He estimated that United had $1.3 billion in unrestricted cash at the end of the year.

"They got interim labor concessions faster than they expected, but fuel prices are higher and revenue is likely to be weaker — particularly with war on the horizon — than they expected," he said.

The fourth-quarter deficit left UAL with a net loss of $3.21 billion for the year — far beyond its $2.1 billion deficit a year earlier.

UAL's net loss for the last three months of the year was $1.47 billion, or $20.70 a share, compared with a fourth-quarter 2001 loss of $308 million, or $5.68 a share.

Excluding certain items, United said the pro-forma loss was $9.65 per share — better than the $13.81 consensus estimate of analysts surveyed by Thomson Financial.

Revenue fell 18 percent to $2.9 billion from $3.5 billion.

The loss easily exceeded the carrier's previous worst result, a $1.16 billion setback for the third quarter of 2001, when the attacks accelerated United's losses and threw the industry into a tailspin from which it has yet to recover.

It was United's tenth straight quarterly loss. Since last turning a profit in the second quarter of 2000, the airline has lost $5.5 billion.

Airline analyst Ray Neidl said it was premature to judge United's emerging new business strategy until details are released. The pilots' and flight attendants' unions have denounced that plan, which is expected to include the creation of a discount airline, as tantamount to a breakup of United.

"An airline within an airline has never worked before," said Neidl, of New York-based Blaylock & Partners. "But in bankruptcy you've got a lot more latitude to put together an operation that could work," he said, including the ability to establish separate management and employees and a lower cost structure.

He said United's employees may "come around to reason when they look at the alternative, which is total liquidation."

For the year, the net loss amounted to $53.55 per share, compared with a year-earlier loss of $40.04 a share. Revenues sank 11 percent to $14.3 billion from $16.1 billion.

UAL shares fell 5 cents to close Friday at $1.02 on the New York Stock Exchange.

http://www.foxnews.com/story/0,2933,77224,00.html