01—Abstract
Summary
Summary of the 10-K filed February 25, 2020. Cited figures are marked; the original filing is the authoritative source.
United Airlines Holdings, Inc. (UAL) reported 2019 net income of $3.0 billiona, or $11.58 per diluted share, up from $2.1 billion, or $7.67, in 2018.
Operating revenue rose 4.7% to $43.26 billionb, driven by a 3.5% increase in ASMs and a 1.5% PRASM increase, while operating expense grew 2.3% to $38.96 billion. Operating income was $4.30 billion versus $3.23 billion in 2018. Aircraft fuel expense fell 3.8% to $8.95 billion as the average price per gallon dropped 7.1% to $2.09.
Cash flow from operations was $6.9 billionc, and the company ended 2019 with $4.9 billion in unrestricted cash, cash equivalents and short-term investments, plus $6.9 billion of unrestricted liquidity including the revolver. Total debt and finance lease obligations were about $14.8 billion, and the company's credit ratings remained below investment grade (BB / Ba2 / BB). The filing highlights significant risks.
The Boeing 737 MAX grounding removed 14 MAX 9 aircraft from service and delayed 16 aircraft deliveries in 2019, with 28 more planned for 2020 affected. The company disclosed a $456 milliond BRW term loan that is in default and is being foreclosed upon in New York courts, plus a $150 million convertible loan provided to Avianca Holdings in December 2019. COVID-19 is also flagged: flights to China were suspended through April 24, 2020, and near-term demand was described as down approximately 100% to China and 75% on the remaining trans-Pacific routes.
Management also announced that J. Scott Kirby will become CEO after the May 2020 annual meeting, with Oscar Munoz moving to Executive Chairman.
The company repurchased 19.2 million shares for $1.6 billion in 2019 and had approximately $3.1 billion remaining under its repurchase programs. It expects approximately $7.0 billion of gross capital expenditures in 2020 and has firm aircraft commitments of 304 aircraft with total commitments of $26.7 billion.
02—Key points
Key Highlights
- Net income rose to $3.0 billion ($11.58 diluted EPS) in 2019 from $2.1 billion ($7.67) in 2018.
- Operating revenue increased 4.7% to $43.26 billion, with passenger revenue up 5.1% on 4.0% higher traffic.
- Aircraft fuel expense fell 3.8% to $8.95 billion, as average fuel price per gallon declined 7.1% to $2.09.
- Liquidity: $4.9 billion in unrestricted cash and short-term investments; $6.9 billion total unrestricted liquidity including the revolver.
- Boeing 737 MAX grounding affected 14 MAX 9 aircraft and 16 scheduled 2019 deliveries, with 28 planned 2020 deliveries also expected to be delayed.
- BRW term loan of $456 million is in default; the carrying value of $499 million was judged not impaired based on collateral fair value, and the $150 million AVH convertible loan was funded in December 2019.
- COVID-19 suspended China flights through April 24, 2020, and near-term demand fell approximately 100% to China and 75% on other trans-Pacific routes.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 25, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $43.26B$41.30B | +4.7% |
| Operating Expenses | $38.96B$38.07B | +2.3% |
| Operating Income | $4.30B$3.23B | +33.2% |
| Net Income | $3.01B$2.12B | +41.8% |
| EPS (Basic) | $11.63$7.70 | +51.0% |
| EPS (Diluted) | $11.58$7.67 | +51.0% |
| Shares Outstanding (Basic) | 258.80M275.50M | −6.1% |
| Shares Outstanding (Diluted) | 259.90M276.70M | −6.1% |
05—Questions
Frequently Asked Questions
How did UAL's profitability change in 2019?
Net income increased to $3.0 billion, or $11.58 per diluted share, from $2.1 billion, or $7.67, in 2018. Operating income rose to $4.3 billion from $3.2 billion, reflecting 4.7% revenue growth and a 2.3% increase in operating expense.
What is the outlook for the Boeing 737 MAX impact?
The FAA order grounding 737 MAX aircraft has reduced scheduled capacity and increased costs. The filing states that the extent of the delay to 2020 deliveries depends on how long the FAA order remains in place and Boeing's production pace, so the company is unable to estimate how many MAX aircraft it will receive in 2020. Discussions with Boeing about compensation have not produced an agreed settlement.
What risks does the Avianca and BRW exposure present?
The $456 million BRW term loan is in default, and Kingsland is pursuing a judicial foreclosure on the collateral, which consists of BRW's AVH shares and equity. Repayment depends on that process, and there is no assurance the sale will fully satisfy the loan. In December 2019 the company also provided a $150 million convertible loan to AVH.
How is the company's debt and credit profile described?
Debt and finance lease obligations totaled approximately $14.8 billion at December 31, 2019, including $1.5 billion due within 12 months. Credit ratings are BB (S&P), Ba2 (Moody's) and BB (Fitch) for UAL, which are below investment grade. The company states that its working capital deficit of about $6.7 billion does not adversely affect liquidity, since about $7.3 billion of current liabilities relate to advance ticket sales and frequent flyer deferred revenue.
What capital allocation and leadership changes were disclosed?
The company repurchased about 19.2 million shares for $1.6 billion in 2019, with about $3.1 billion remaining under its programs, and expects approximately $7.0 billion of gross capital expenditures in 2020. The company also announced that J. Scott Kirby will become CEO after the May 20, 2020 annual meeting, and Oscar Munoz will become Executive Chairman.
06—Continue