01—Abstract
Summary
Summary of the 10-K filed March 2, 2009. Cited figures are marked; the original filing is the authoritative source.
UAL Corporation and its principal subsidiary United Air Lines, Inc. filed this combined Form 10-K for 2008 reporting a net loss of $5.3 billiona ($5,348 million) on operating revenues of $20.19 billion, compared with net income of $403 million in 2007.
The loss was driven primarily by fuel costs: mainline fuel expense rose to $7.72 billionb from $5.00 billion, with the average price per gallon increasing to 353.9 cents from 218.3 cents, and fuel hedge losses exceeded $1.1 billion. The company also recorded $2.6 billion of asset impairments, including a $2.28 billion goodwill write-off, and $1.5 billion of cash and short-term investments declined to $2.0 billion of unrestricted cash at year-end. Management is responding with capacity cuts (mainline domestic capacity down 14% in Q4 2008), permanent removal of 100 aircraft including the entire B737 fleet, elimination of the Ted leisure product, a reduction of roughly 9,000 positions in 2008 and 2009, and a planned strategic alliance with Continental Airlines.
Liquidity actions included about $1.9 billionc of unrestricted cash generated through financing, credit card and co-brand amendments, and sale-leasebacks. The filing flags material risks: the Amended Credit Facility requires a $1.0 billion minimum unrestricted cash balance and fixed charge coverage ratio testing beginning in the second quarter of 2009, credit card processor reserve requirements could rise if cash falls, and the company holds below-investment-grade credit ratings.
The filing also discloses pending antitrust investigations into air cargo surcharges, labor agreements becoming amendable in January 2010, and September 11 litigation where the aviation defendants' exposure is capped at insurance coverage. Management concluded internal control over financial reporting was effective as of December 31, 2008, and Deloitte & Touche LLP issued an unqualified audit opinion dated March 2, 2009.
02—Key points
Key Highlights
- Net loss of $5.35 billion (basic EPS of -$42.21) in 2008 versus net income of $403 million in 2007
- Aircraft fuel expense rose $2.72 billion, or 54.3%, to $7.72 billion as the mainline average fuel price reached 353.9 cents per gallon
- Total impairments and other charges of $3.62 billion, including a $2.28 billion goodwill impairment that fully eliminated goodwill
- Unrestricted cash and short-term investments fell to $2.0 billion at year-end 2008 from $3.6 billion, after $965 million of fuel hedge collateral deposits
- Operational plans include removing 100 aircraft (entire B737 fleet and six B747s), eliminating the Ted product, and cutting about 9,000 positions in 2008 and 2009
- Credit ratings are below investment grade, with Standard & Poor's at B- and Moody's at Caa1, and the Amended Credit Facility requires $1.0 billion minimum unrestricted cash
- Mainline operating revenues were $17.1 billion, with passenger revenues per ASM rising to 11.29 cents
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2008filed March 2, 2009Financial Statements
| Revenue | $20.19B |
| Operating Expenses | $24.63B |
| Operating Income | -$4.44B |
| Interest Expense | $571.00M |
| Net Income | -$5.40B |
| EPS (Basic) | $-42.59 |
| EPS (Diluted) | $-42.59 |
05—Questions
Frequently Asked Questions
Why did UAL report a net loss in 2008 after profit in 2007?
The primary drivers were record fuel prices, with crude oil reaching about $145 per barrel in July 2008, which increased consolidated fuel costs by more than $3.1 billion. The company also recorded $2.6 billion of asset impairments and $1.1 billion or more of fuel hedge losses, while the benefits of higher yields only partly offset these costs.
How much liquidity does the company have and what are the key covenant risks?
At December 31, 2008, UAL had unrestricted cash of $2.0 billion and restricted cash of $0.3 billion. The Amended Credit Facility requires a minimum unrestricted cash balance of $1.0 billion and a fixed charge coverage ratio beginning with the second quarter of 2009. A failure to comply could result in a default and acceleration of repayment.
What actions is management taking to return to profitability?
Management is permanently removing 100 aircraft, reducing mainline domestic capacity, eliminating the Ted leisure product, cutting about 9,000 positions in 2008 and 2009, and limiting 2009 capital spending to $450 million. It also cited new revenue sources such as a $15 fee for the first checked bag and a planned strategic alliance with Continental Airlines.
What legal and labor risks could affect the company?
The company is cooperating with European Commission and U.S. Department of Justice investigations into air cargo pricing, and penalties could be substantial. All six U.S. labor agreements become amendable in January 2010, and the September 11 litigation exposure is limited by statute to insurance coverage.
06—Continue