Fuel Hedge Losses Take Big Bite Out Of $5.57 Billion In
Revenues
There's losing money... and then there's hemorrhaging cash.
United Airlines took another giant step towards the latter Tuesday,
reporting a third-quarter loss of $779 million due to hits incurred
from the carrier's fuel hedging program.
The loss comes out to a $6.13 per-share hit for United
stockholders, despite increasing revenue for the airline. But even
$5.57 billion in cash taken in couldn't offset the hit United took
on its hedged fuel supplies, which are considerably weaker now that
oil prices have plummeted from their high of $147 per barrel this
summer.
"While today's weak economic environment challenges our industry
as demand softens, that same economic environment has caused oil
prices to significantly decline from the unprecedented highs we
witnessed earlier this year, suggesting significantly lower
industry costs and improving operating margin," said Glenn Tilton,
United chairman, president and CEO. "We are taking the action
required to return to profitability and continue to strengthen our
liquidity while simultaneously improving the operating fundamentals
to deliver the results our shareholders and customers expect."
Without the $519 million in non-cash fuel hedge losses, United
"only" lost about $1.99 per share... which was actually better than
many analysts had predicted.
In happier news for the struggling airline, United noted it
received approximately $1.4 billion through various transactions it
closed during the quarter, including approximately $1 billion
through a revised financing agreement with credit card service
providers Chase Bank USA and Paymentech LCC. "The agreements with
Chase and Paymentech will improve United's liquidity by an
additional $200 million over the next two years," according to the
airline.
"We are ensuring that United is well positioned in this
difficult market: we have minimal capital obligations and we have
been able to raise $1.4 billion, including a $125 million financing
closed just a few weeks ago in a very tough credit market," said
Kathryn Mikells, United's incoming CFO. "We continue the work to
further enhance liquidity and our $3.0 billion in unencumbered
assets provide us with critical financial and operational
flexibility."
Which goes to show... in today's torturous, bailout-fueled
economic environment, every failure can be spun as a
positive.