Will Post Loss To Deliberately Devalue Company

There's a lack of "goodwill" lately at United Airlines... and we're not talking about the contentious relationship between management and employees. Parent company UAL announced Monday it might record a $2.7 billion hit for the second quarter of 2008, slashing any "goodwill" it's had for the past two years.

In this context, "goodwill" represents the excess value United carried above the estimated fair market value of its assets, when it left bankruptcy protection in February 2006.

Bloomberg reports United will dump some $2.3 billion of that "goodwill" value, to deliberately devalue the airline in the face of soaring fuel prices. The airline will also post $82 million in losses related to cuts in payroll, while another $246 million is tied to retiring United's 737 fleet. Some $60 million will be lost due to unspecified projects that have either been terminated, or indefinitely deferred.

"Given current market conditions with the price of fuel and the significant drop in the company's market capitalization, the intrinsic value that existed at bankruptcy is significantly reduced," said United spokeswoman Jean Medina.

That's an understatement. With the devaluation, United's value is only about 24% of the book value of its assets... meaning United as an airline is worth much, much less than the sum of its parts.

United isn't the first carrier to cut its "goodwill." Northwest slashed its $2.2 billion goodwill value earlier this year, following the steps of a similar writedown by merger partner Delta Air Lines. 

While almost all US airlines have seen their stock values drop this year, prices for shares in United have plummeted 90 percent... by far the sharpest dropoff.

FMI: www.united.com