They Lost Their Giant?
United Airlines came a cropper in
the second quarter this year, and its loss was a whopper.
Bankruptcy, while it keeps creditors at bay, still costs lots of
money. Lawyers and consultants and the courts have to get paid; and
they get paid first, as post-petition creditors, while the
bondholders line the birdcage with their certificates, and the
court churns on, keeping the dying patient alive, sopping up
customers from otherwise-viable airlines.
Not management's fault.
Anyway, United announced that its second-quarter loss, some $623
million, was largely the result of all those expensive lawyers and
consultants -- UAL attributed about $397 million of the loss to
'reorganization expenses.' The rest was just a regular hemorrage of
It's not as though all the news was bad. Its loss last year, in
the same period, was $341 million -- more than the
non-reorganization loss this year. Thanks to United's unions and
management actions, payroll is down 30%; and overall expenses have
been reduced by over 17%.
The top line
(revenue) was down 18%, though, because of the
well-known things: war, SARS -- and a "fly three, get one free"
It could have been a lot worse. The government gave United $300
million of taxpayers' money, as war reparations...
UAL's Chief (right) explained, "The second quarter began as a
severe challenge for United and the industry as a whole... Despite
the continued difficult economic environment, the improvement in
both revenue and cost is encouraging." Mr. Tilton's remarks didn't
explain the 'improvement in revenue' part.
There is a possible glimmer of hope: in June, the company, after
making the usual accounting adjustments, figured it had an
operating profit of some $20 million. When the actual numbers all
are added to the operation, though, that comes out the same as a
$310 million loss.
UAL says it's staying within its creditors' committee guidelines
for how much it can lose.