Thu, Sep 18, 2008
Also Anticipates Big Q3 Loss For Struggling Carrier
It seems little is going United Airlines' way lately. From a
global economic slump to
enraged pilots, from high oil prices to high
tempers among its sacrificial cash cows --
er, passengers -- one would assume the
Chicago-based carrier is destined for good news of some
kind, soon... right?
This isn't that story. The Associated Press reports United is on
track to lose $544 million against contracts in the futures market,
that the carrier used to hedge its fuel prices in the third quarter
of 2003.
Those hedges were intended to save United money, as oil prices
skyrocketed as high as $147 per barrel earlier this year... but,
alas, prices have since fallen below $100, making those hedges much
less effective.
As a result, United recorded $72 million in actual losses... and
another $472 million in unrealized losses (those hits United
shareholders have taken after they bought stock in the airline, and
before they're able to sell it.) The airline was forced to put $400
million in restricted cash into those hedges, to make the balance
sheets a bit more balanced.
"Yes, hedgers are underwater on their hedges but they are seeing
some relief on the cash market side. That's how it should work,"
said Jonathan Leak, a senior vice president for risk management at
airline hedge-fund firm World Fuel Services.
While United will be able to recoup some of those losses by
paying a lower price for its non-hedged fuel supplies, JP Morgan
analyst Jamie Baker still expects United to lose as much as $2.30 a
share in the third quarter... over two times higher than the $1.08
per share loss analysts surveyed by Thomson Reuters had
predicted.
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