Such is life in the airline industry these days that a company can report a $2.73 billion quarterly loss and still see its stock climb 50%. That is what happened with United Airlines Inc. parent UAL Corp. on Tuesday, which saw its stock soar despite a
massive loss
tied to $2.3 billion in noncash accounting charges. Excluding the
one-time charges, the company's per share loss beat expectations, but
its quarterly revenue was a little short of expectations.
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But UAL's bad results were overshadowed by its announcement that it had bolstered its cash position by $1.7 billion in the quarter, lessening the chance high fuel prices would force it to seek Chapter 11 protection as some had feared. The airline raised the cash by mortgaging aircraft, as well as by reworking its credit card deals with Chase Bank USA NA and Paymentech. Under the new deals, United will receive $600 million for advanced purchase of frequent-flier miles and $200 million in improved cash flow.
Additionally, the level of holdback United is required to maintain under its credit card processing agreement has been reduced to $25 million, releasing about $350 million in previously restricted cash.
The new capital, which gives United about $3 billion in unencumbered hard assets at quarter's end, should help UAL to weather the current high-oil storm. Shares of the airline climbed $2.40, or nearly 50%, to $7.40 on the news after falling to a 52-week low of $2.80 earlier in the month.
Of course no amount of cash will last forever, and United along with many of its rivals could be in serious trouble by the end of 2009 if current fuel prices stay in place and the industry does not continue to shrink. But for now, it appears the airline is a good bet to remain clear of a bankruptcy filing. And for today, at least, that is reason enough for investors to applaud. - Lou Whiteman
See UAL liquidity statement
See UAL quarterly results
See Dealwatch: Airlines
