Friday, 1 May 2020

First Quarter 2020 financial results for United Airlines show a loss of $1.7 billion

The US mega-carrier United Airlines has posted a net loss of $1.7 billion during the first quarter of 2020 according to the the latest results issued by the airline this week.
Photo United Airlines

The company also outlined U.S. airline industry-leading efforts to manage through the most disruptive global crisis in the history of aviation. The company's total liquidity as of the close of business on Wednesday, April 29, 2020 was approximately $9.6 billion, including $2 billion under its undrawn revolving credit facility. The company currently expects daily cash burn² to average between $40 million and $45 million during the second quarter of 2020.

"Throughout the COVID-19 crisis we have maintained our focus - first on the safety of our customers and our people and second on swiftly taking action to keep United operating. We have been at the forefront of warning how deep of an impact we expect this crisis could have and how long we expect it could last. We've also led the industry in taking decisive steps to mitigate the operational and financial impacts of COVID-19 -- making deep schedule reductions, drastically reducing spending and aggressively raising liquidity," said Chief Executive Officer, Oscar Munoz. "While we are still in the midst of this crisis, we will not hesitate to make difficult decisions we believe will ensure the long term success of our company.  When demand returns, we believe we'll be positioned to bounce back strongly and quickly because of our early and aggressive efforts to fight the worst financial crisis in aviation history."


COVID-19 Actions


The company took early and aggressive action intended to mitigate the impact of COVID-19 to position the company to bounce back quickly and make United stronger when demand returns.

First U.S. airline to make aggressive capacity reductions.
Suspended share repurchase program on Feb. 24, 2020, after spread of COVID-19 to Italy and terminated the program on April 24, 2020.
First U.S. airline to actively raise additional liquidity to manage the crisis. Since early March, the company raised $4.0 billion of new liquidity in three secured term loan facilities, new aircraft financings and an equity offering (excludes CARES Act Payroll Support Program funding and any Loan Program loans) as of the close of business April 29, 2020.
The company entered into an agreement with a subsidiary of BOC Aviation Limited for lease financing of six Boeing 787-9 and 16 Boeing 737 MAX 9 aircraft that are currently subject to purchase agreements between United and The Boeing Company and are scheduled to deliver in 2020, including two Boeing 787-9 aircraft that were delivered in April.
First U.S. airline to announce chief executive officer and president forgoing 100% of respective base salaries.
First U.S. airline to announce all other officers of the company will take salary reductions, with every officer base salary reduced by 50%.
Suspended merit salary increases for management and administrative employees and instituted a hiring freeze.
Offered voluntary unpaid leaves of absence for U.S.-based employees -- with more than 20,000 employees now participating.
Non-employee directors of the company waived 100% of cash compensation for the second and third quarters of 2020.
First major U.S. airline to require all flight attendants to wear masks on duty.
Postponed projects deemed non-critical to operation.
Slashed spending on vendors and outside contractors.
Reduced planned full-year adjusted capital expenditures by approximately $2.5 billion, bringing expected full-year adjusted capital expenditures to below $4.5 billion.3
Plan to only take delivery of aircraft that have financing in place.

Government Support


United has entered into an agreement to receive approximately $5.0 billion from the U.S. Treasury Department through the Payroll Support Program under the CARES Act in the form of a $3.5 billion grant and a $1.5 billion 10-year loan which will be used to protect the salaries and benefits of employees through Sept. 30, 2020. In connection with this funding, UAL will issue warrants to purchase approximately 4.6 million shares of UAL common stock to the federal government. The first instalment of approximately $2.5 billion was received by United on April 21, 2020, and warrants to purchase approximately 2.3 million shares of UAL common stock were issued.

The company submitted an application to the Loan Program under the CARES Act. Under the Loan Program, the company expects to have the ability through Sept. 30, 2020, to borrow up to approximately $4.5 billion from the U.S. Treasury Department for a term of up to five years, with any loans issued expected to be senior secured obligations of the company. If the company borrows any amounts under the Loan Program, UAL expects to issue to the U.S. Treasury Department warrants to purchase shares of UAL common stock, with the number of warrants dependent on total borrowings.

First Quarter Results


Reported first quarter net loss of $1.7 billion, diluted loss per share of $6.86, and pre-tax loss of $2.1 billion.
Reported first quarter adjusted net loss of $639 million, adjusted diluted loss per share of $2.57, and adjusted pre-tax loss of $1.0 billion.¹
Additional COVID-19 Actions

Employees


Committed to no involuntary furloughs or reduced pay rates in the U.S. through Sept. 30, 2020.
Diligently enacting safety and social distancing measures designed to mitigate the spread of COVID-19 and ensure the workplace is clean and safe.
Utilizing temperature checks for airport employees and Flight Attendants prior to beginning work.
Simplified catering on flights to all shelf-stable and packaged food, and sealed and canned beverages; suspended buy on board.
Adjusted flight attendant jump seat locations so crew members don't have to sit directly next to or across from each other.
Granting additional paid days off for front line employees at several airports to limit their potential exposure to COVID-19.
Covering all testing costs associated with COVID-19 for anyone enrolled in a United medical plan, reduced copays for telemedicine visits.

Customers


Waiving change fees for tickets purchased through May 31, 2020 for twelve months and waiving redeposit fees for MileagePlus award travel scheduled through May 31, 2020.
Extended MileagePlus Premier status to 2022.
Utilizing electrostatic spraying to disinfect aircraft interiors, and expect to spray every operated flight by mid-June.
In May, start testing touchless kiosks for printing bag tags and checking bags, eliminating the need to touch the screen.
Made several modifications to the boarding process, including: customers scanning their own tickets prior to boarding, boarding fewer customers at a time and boarding from back to front.
Continue to provide the only commercial air service between Australia and the United States and Israel and the United States.
Enacting social distancing on flights for flight attendants and customers, including blocking middle seats.

Community


Since March 19, United Cargo has operated more than 800 cargo-only flights worldwide, bringing more than 28 million pounds of food and supplies to destinations worldwide.
Operated more than 130 repatriation flights bringing more than 18,500 Americans home who were stranded abroad.
Donated more than 173,327 pounds of food to food banks, hospitals and other organizations from United's catering facilities and Polaris lounges.
In 2019, launched Miles on a Mission, which allows members to donate miles to organizations including those that now support COVID-19 efforts.
Working with governments worldwide to assist moving people/supplies.
Partnered with California, New Jersey and New York City to provide free round-trip flights for medical volunteers traveling to heavily impacted cities, and to date have booked flights for more than 1,000 volunteers and 800 medical professionals.
Houston employees led effort to convert Houston cargo facility into food distribution center to aid the Houston Food Bank's efforts to feed families in need during the COVID-19 crisis.
Earnings Call




UNITED AIRLINES HOLDINGS, INC
STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)



Three Months Ended
March 31,

%
Increase/
(Decrease)
(In millions, except per share data)

2020

2019

Operating revenue:






Passenger

$
7,065


$
8,725


(19.0)

Cargo

264


286


(7.7)

Other operating revenue

650


578


12.5

Total operating revenue

7,979


9,589


(16.8)








Operating expense:






Salaries and related costs

2,955


2,873


2.9

Aircraft fuel

1,726


2,023


(14.7)

Regional capacity purchase

737


688


7.1

Landing fees and other rent

623


588


6.0

Depreciation and amortization

615


547


12.4

Aircraft maintenance materials and outside repairs

434


408


6.4

Distribution expenses

295


360


(18.1)

Aircraft rent

50


81


(38.3)

Special charges (B)

63


18


NM

Other operating expenses

1,453


1,508


(3.6)

Total operating expense

8,951


9,094


(1.6)








Operating income (loss)

(972)


495


NM








Operating margin

(12.2)
%

5.2
%

NM








Nonoperating income (expense):






Interest expense

(171)


(188)


(9.0)

Interest capitalized

21


22


(4.5)

Interest income

26


29


(10.3)

Unrealized gains (losses) on investments, net (B)

(319)


17


NM

Miscellaneous, net (B)

(699)


(8)


NM

Total nonoperating expense

(1,142)


(128)


NM








Income (loss) before income taxes

(2,114)


367


NM








Pre-tax margin

(26.5)
%

3.8
%

NM








Income tax expense (benefit) (D)

(410)


75


NM

Net income (loss)

$
(1,704)


$
292


NM








Diluted earnings (loss) per share

$
(6.86)


$
1.09


NM

Diluted weighted average shares

248.5


268.3


(7.4)








NM Not meaningful







UNITED AIRLINES HOLDINGS, INC.
PASSENGER REVENUE INFORMATION AND STATISTICS

Passenger revenue information is as follows (in millions, except for percentage changes):


1Q 2020
Passenger
Revenue

1Q 2019
Passenger
Revenue
(a)

Reporting
Adjustments
(b)

1Q 2019
Passenger
Revenue
(b)

Passenger
Revenue
vs.
1Q 2019
(b)

PRASM
vs. 1
Q 2019
(b)

Yield vs.
1Q 2019
(b)

Available
Seat Miles
vs.
1Q 2019

1Q 2020
Available
Seat
Miles

1Q 2020
Revenue
Passenger
Miles
Domestic
$
4,504


$
5,367


$
57


$
5,424


(17.0%)

(15.2%)

(1.2%)

(2.2%)

35,936

25,508




















Atlantic
1,073


1,331


(27)


1,304


(17.7%)

(14.8%)

(7.3%)

(3.4%)

10,265

7,029
Pacific
688


1,121


(33)


1,088


(36.8%)

(11.3%)

0.2%

(28.6%)

7,795

5,475
Latin America
800


906


3


909


(12.0%)

(6.6%)

4.0%

(5.8%)

6,942

5,217
International
2,561


3,358


(57)


3,301


(22.4%)

(10.3%)

(0.4%)

(13.5%)

25,002

17,721




















Consolidated
$
7,065


$
8,725


$


$
8,725


(19.0%)

(12.8%)

(0.5%)

(7.2%)

60,938

43,229




















(a)
As previously reported.
(b)
During the third quarter of 2019, United implemented a new revenue accounting software system which allowed it to more precisely determine the geographic regions associated with certain ancillary passenger revenue items. Prior to July 2019, those ancillary revenue items were determined using an allocation method that was based on revenue from passenger travel. While the total passenger revenue is not impacted, the geographic totals for each period are not comparable year-over-year due to the change. The first quarter 2019 passenger revenue presented in the table above reallocates these ancillary items using the revised allocation.

Select operating statistics are as follows:



Three Months Ended
March 31,

%
Increase/
(Decrease)



2020

2019


Passengers (thousands)

30,359


36,454


(16.7)


Revenue passenger miles (millions)

43,229


53,097


(18.6)


Available seat miles (millions)

60,938


65,645


(7.2)


Passenger load factor:







    Consolidated

70.9
%

80.9
%

(10.0)

pts.
    Domestic

71.0
%

82.6
%

(11.6)

pts.
    International

70.9
%

78.7
%

(7.8)

pts.
Passenger revenue per available seat mile (cents)

11.59


13.29


(12.8)


Total revenue per available seat mile (cents)

13.09


14.61


(10.4)


Average yield per revenue passenger mile (cents)

16.34


16.43


(0.5)


Cargo ton miles

683


805


(15.2)


Aircraft in fleet at end of period

1,388


1,348


3.0


Average stage length (miles)

1,399


1,448


(3.4)


Average full-time equivalent employees

90,766


88,730


2.3


Average aircraft fuel price per gallon

$
1.90


$
2.05


(7.3)


Fuel gallons consumed (millions)

910


985


(7.6)



Note: See Part II, Item 6, Selected Financial Data, of UAL's Annual Report on Form 10-K for the fiscal year ended December 31, 2019, for definitions of these statistics.       

UNITED AIRLINES HOLDINGS, INC
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 (In millions)
March 31, 2020

December 31, 2019
ASSETS



Current assets:



Cash and cash equivalents
$
3,442


$
2,762

Short-term investments
1,779


2,182

Receivables, less allowance for credit losses (2020 — $30; 2019 — $9)
792


1,364

Aircraft fuel, spare parts and supplies, less obsolescence allowance (2020 — $446; 2019 — $425)
1,070


1,072

Prepaid expenses and other
822


814

Total current assets
7,905


8,194





Total operating property and equipment, net
31,811


30,170

Operating lease right-of-use assets
4,853


4,758





Other assets:



Goodwill
4,523


4,523

Intangibles, less accumulated amortization (2020 — $1,454; 2019 — $1,440)
2,945


3,009

Restricted cash
106


106

Notes receivable, less allowance for credit losses (2020 — $549)
149


671

Investments in affiliates and other, net
763


1,180

Total other assets
8,486


9,489

Total assets
$
53,055


$
52,611





LIABILITIES AND STOCKHOLDERS' EQUITY



Current liabilities:



Advance ticket sales
$
5,309


$
4,819

Accounts payable
2,436


2,703

Frequent flyer deferred revenue
1,355


2,440

Accrued salaries and benefits
1,647


2,271

Current maturities of long-term debt
4,055


1,407

Current maturities of finance leases
59


46

Current maturities of operating leases
688


686

Other
538


566

Total current liabilities
16,087


14,938





Other long-term liabilities and deferred credits:



Long-term debt
13,198


13,145

Long-term obligations under finance leases
369


220

Long-term obligations under operating leases
5,060


4,946

Frequent flyer deferred revenue
4,133


2,836

Postretirement benefit liability
775


789

Pension liability
1,514


1,446

Deferred income taxes
1,322


1,736

Other
1,179


1,024

Total other long-term liabilities and deferred credits
27,550


26,142

Stockholders' equity
9,418


11,531

Total liabilities and stockholders' equity
$
53,055


$
52,611


UNITED AIRLINES HOLDINGS, INC.
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)

 (In millions)
Three Months Ended
March 31,

2020

2019
Cash Flows from Operating Activities:



Net cash provided by operating activities
$
63


$
1,915





Cash Flows from Investing Activities:



Capital expenditures
(1,959)


(1,609)

Purchases of short-term and other investments
(541)


(724)

Proceeds from sale of short-term and other investments
927


768

Other, net
1


(15)

Net cash used in investing activities
(1,572)


(1,580)





Cash Flows from Financing Activities:



Proceeds from issuance of short-term debt
2,500



Proceeds from issuance of long-term debt
348


646

Payments of long-term debt
(235)


(250)

Repurchases of common stock
(353)


(513)

Principal payments under finance leases
(18)


(20)

Capitalized financing costs
(35)


(17)

Other, net
(18)


(29)

Net cash provided (used) in financing activities
2,189


(183)

Net increase in cash, cash equivalents and restricted cash
680


152

Cash, cash equivalents and restricted cash at beginning of the period
2,868


1,799

Cash, cash equivalents and restricted cash at end of the period
$
3,548


$
1,951





Investing and Financing Activities Not Affecting Cash:



Property and equipment acquired through the issuance of debt
$
109


$
92

Right-of-use assets acquired through operating leases
30


51

Property and equipment acquired through finance leases
19


8

Lease modifications and lease conversions
439


36






UNITED AIRLINES HOLDINGS, INC.
RETURN ON INVESTED CAPITAL (ROIC)—Non-GAAP

ROIC is a non-GAAP financial measure that UAL believes provides useful supplemental information for management and investors by measuring the effectiveness of the company's operations' use of invested capital to generate profits.



(in millions)
Twelve Months Ended
March 31, 2020
Net Operating Profit After Tax ("NOPAT")

Pre-tax income
$
1,433

Adjustments:

  Special charges and unrealized losses on investments, net:

    Impairment of assets
213

    Severance and benefit costs
10

Nonoperating credit loss on BRW Aviation Holding LLC and BRW Aviation LLC ("BRW") term loan and related     guarantee
697

    Unrealized losses on investments, net
183

    (Gains) losses on sale of assets and other special charges
68

Pre-tax income excluding special charges and unrealized losses on investments, net (Non-GAAP)
2,604

    add: Interest expense  (net of income tax benefit) (a)
709

    add: Interest component of capitalized aircraft rent  (net of income tax benefit) (a)
127

    add: Net interest on pension (net of income tax benefit) (a)
(47)

    less: Income taxes paid
(20)

NOPAT (Non-GAAP)
$
3,373





Average Invested Capital (five-quarter average)

Total assets
$
52,131

less: Non-interest bearing liabilities (b)
(18,432)

Average invested capital (Non-GAAP)
$
33,699



ROIC (Non-GAAP)
10.0
%




(a)
Income tax benefit measured based on the effective cash tax rate. The effective cash tax rate is calculated by dividing net cash taxes paid by pre-tax income excluding special charges and unrealized (gains) losses on investments, net. For the three months ended March 31, 2020, the effective cash tax rate was 0.8%.
(b)
Non-interest bearing liabilities include advance ticket sales, frequent flyer deferred revenue, deferred income taxes and other non-interest bearing liabilities.

UNITED AIRLINES HOLDINGS, INC.


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