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DALLAS—United Airlines parent UAL Corp. rose the most
since leaving bankruptcy two years ago after saying it
will cut 7,000 jobs and free up cash under a new
credit-card agreement with JPMorgan Chase & Co.
UAL
announced the moves late Tuesday as it reported a
$2.73-billion second-quarter net loss that was narrower
than analysts’ estimates when some costs are excluded.
The
payroll reductions amount to about 13 percent of UAL’s
employees, and push the total to about 26,000 across the
US industry. United, the world’s second-largest airline,
is among the carriers boosting fares and shrinking their
fleets and work forces to stem losses from record
jet-fuel prices.
UAL
“made significant strides in shoring up liquidity,”
James Corridore, a Standard & Poor’s equity analyst in
New York, said in a note to investors in which he raised
his rating to “hold” from “sell.” “Liquidity is less of
a concern.”
UAL
jumped $3.42, or 69 percent, to $8.41 at 4 p.m. New York
time in Nasdaq Stock Market composite trading Tuesday.
It was the biggest advance since the shares started
trading in January 2006 before Chicago-based UAL’s
February 1 bankruptcy exit that year.
Crude
oil fell for the fifth time in seven trading sessions in
New York, which also buoyed UAL and other airline
shares.
The
Chase accord means that UAL will only have to keep $25
million in reserve for credit-card processing, allowing
it to tap about $350 million in previously restricted
cash, chief financial officer Jake Brace said on a
conference call. UAL also will receive a $600-million
infusion from the sale of frequent-flier miles to Chase
for distribution to credit- card holders.
“We got
what we needed out of that contract,” Brace said. “We
got a higher price per mile. That was important to us,
and the liquidity.”
UAL said
it ended the quarter with $2.9 billion in unrestricted
cash and $655 million in restricted cash.
The new
job-cut total adds to UAL’s previous announcement of the
elimination of 1,500 salaried positions. UAL said it
will shrink its work force by 5,500 hourly employees by
the end of 2009. The carrier had about 52,500 workers as
of March 31.
“Much of
the requirement for people is driven by flights and
seats,” said Jon Ash, president of Washington-based
consulting firm InterVistas-GA2. “When you take flights
and seats out of the system, you’ve got to take people
out.”
United
also boosted its 2008 goal for nonfuel cost savings by
25 percent to $500 million and said it will further trim
global seating capacity by as much as 2 percent in the
fourth quarter and 2009.
Excluding $2.6 billion in noncash charges for a
writedown and severance, the second-quarter loss was
$151 million, or $1.19 a share, UAL said. On that basis,
UAL was projected to report a loss of $2.05 a share, the
average of 10 analyst estimates compiled by Bloomberg.
Year-earlier earnings were $274 million, or $1.83 a
share. Sales rose 3 percent to $5.37 billion.
Even
with Tuesday’s share boost, UAL remains the worst
performer among the 14-member Bloomberg US Airlines
index. The stock has fallen 77 percent this year.
“Our
industry is challenged as never before by the
unrelenting price of oil,” chief executive officer Glenn
Tilton, 60, said in the statement.
United’s
jet-fuel expense climbed 53 percent from a year earlier
to $1.85 billion, outpacing fare increases and new fees.
Jet fuel for immediate delivery in New York Harbor
reached $4.09 a gallon on May 21. The record price was
$4.36 on July 3.
With six
of the eight largest US airlines now reporting
second-quarter results, the group’s collective net loss
is $5.8 billion. Like UAL, American Airlines parent AMR
Corp., Delta Air Lines Inc., Continental Airlines Inc.,
US Airways Group Inc. and JetBlue Airways Corp. all
posted deficits within the past week. Northwest Airlines
Corp. and Southwest Airlines Co. are scheduled to
release earnings this week.
UAL’s
second-quarter loss included previously announced costs
of $2.3 billion to eliminate so-called goodwill, $194
million tied to retiring Boeing Co. 737s, $82 million
for severance and $54 million for projects that have
been terminated or indefinitely deferred.
The
largest US airlines will cut their fleets by at least
465 jets this year to stem losses. More reductions in
aircraft and employees are possible as the slowing US
economy damps travel demand, analysts have said.
United
expects revenue from sources other than ticket sales to
reach more than $1 billion in 2009, chief operating
officer John Tague said. The money will come from fees
to check bags or purchase cabin upgrades, unspecified
merchandising initiatives and optional services yet to
be announced, he said.
Creating
an alliance with Continental to book seats on each
other’s planes, share frequent-flier miles and create
joint marketing plans also will boost revenue, United
said. The carriers will ask US regulators this week to
approve Continental’s shift to United’s Star Alliance
airline group.
The cost
to protect UAL’s debt from default fell Tuesday. Sellers
of credit-default swaps demanded 56.5 percent up-front
and 5 percent a year for five years, down from an
initial cost of 60 percent Monday, according to CMA
Datavision. That means it would cost $5.65 million
up-front and $500,000 a year to protect $10 million in
UAL bonds from default for 5 years. |
