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United Airlines To Order 100’s Of Planes, But How Will They Pay For Them?
By David Spurr on June 4, 2009 | More Posts By David Spurr | Author's Website
United Airlines (UAL) decided to place an order with Boeing/Airbus for hundreds of new jets. The questions is how are they going to pay for it. The WSJ reported the potential order:
WSJ:
- United Airlines has asked Boeing Co. and Airbus to propose dueling bids for up to 150 new airliners — the latest example of major companies exploiting the recession to bargain-hunt.
For the two aircraft makers, the deal could be worth more than $10 billion at a time when both are watching other customers cancel or defer orders. By staging a winner-take-all competition, United’s parent, UAL Corp., is hoping to obtain better terms than otherwise might be available, according to people familiar with the situation.
It’s a notable move amid falling travel demand and a tight lending environment — on top of UAL’s recent heavy losses and poor credit rating. But even in good times aircraft builders will go to considerable lengths to lock in an order, using in-house financing arms and other maneuvers to help airlines buy. Their goal: Ensure a steady appetite for their product in the notoriously volatile airline business.
- United could sign a major order as early as the fall, the people familiar with the matter said, if Boeing or Airbus agree to certain conditions. The most crucial would be financing arranged by the manufacturer that doesn’t eat into United’s cash, these people said. United also wants the flexibility to change the order later, according to these people.
I got to thinking and decided to take a peak at how the operations are going at UAL, since they emerged from bankruptcy in 2006. I found that they have sustained losses from operations, not profits. They are losing money.
The balance sheet below shows that the company has negative equity. The liabilities are bigger than the assets. The Airlines have been losing money for years.
Is this order - something that the government has suggested ? Perhaps Obama told UAL to order the jets and don’t worry about how to pay for it - we’ll use TARP funds or bailout money. If I was Boeing, I’d like to know who’s going to pay for this.
Maybe it’s time we nationalize the Airlines too. Most of these airlines are money losing propositions. It has been going on for years. Isn’t it truly time for a change in how these companies are structured or owned ?
These are the largest holders of UAL stock. These companies should be embarassed to own this company. It has been a terrible investment. It’s losing money from operations consistently - why would a fund want to own this.
The only rationale for ownership is hugging the index - Mindless investing !
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This year is turning out to be very educational.
Amazing, even as a publicity stunt it would be humiliating.
This company will be out of business by the end of 2010. They have the worst management, labor relations, and customer service of any major airline. United is throwing their furniture into the fire right now to maintain their cash balance, but soon there will be nothing left to sell except the most valuable routes. There will be no bailout for this airline. Their are several possible reasons for this publicity stunt, none of which has anything to do with moving the airline into the future - and for United, there is no future.
Posts like this are normally written disgruntled former employees or employees of competitors. United has a great route structure and will be around for a long time. The current fleet will not last forever and will need to be replaced over time. Now may be an opportune time to put an order in place. Most deliveries will likely be years from now. Near term debt would be minimal. United was very profitable in 2007. A $250 million dividend was paid to shareholders in early 2008 as a result. As the economy recovers, United will be well positioned to succeed.