United Airlines (UAUA)

the carrier said ( July 14th )it plans to take second-quarter non-cash charges of as much as $2.7 billion, reflecting a write-down to zero on its intangible assets (goodwill).

The company said that this write-down is due to record-high fuel prices hammering its financial results and market capitalization. As of last Friday, UAL, which generates about $20 billion in annual revenue, had an equity value of $433 million, less than the retail price of two jumbo jets.

Its stock has plunged more than 90% in the past year, a greater loss than most of its peers.

UAL said the goodwill impairment will result in non-cash charges of $2.2-2.3 billion. On top of that, the company expects to take additional charges totalling $388 million related to the early retirement of some aircrafts, severance for staffing reductions, project terminations and higher employee benefit obligations. Excluding the charges, analysts expect UAL to post a loss of about $211 million, or $1.75 a share, on revenue of $5.4 billion. In last year’s second quarter, when fuel expenses were materially lower and the sector still was healthy, United had a profit of $274 million, or $1.83 a share. Like other major U.S. carriers, United plans to shrink its operations to cope with rising fuel bills and the softening economy.

Fleet Cuts

United will remove 100 aircrafts from its 460 plane fleet by 2009 and intends to pare its domestic capacity by about 15% in the fourth quarter and 8% for all of 2008. It plans to cut 1,500 salaried and management jobs, or about 20% of the total, and furlough 950 of its 6,000 pilots. Other employee groups also will be affected in the coming months as the company, which currently has 55,000 workers, adapts to its smaller profile.

In its review of the airline space, Credit Suisse downgraded several names July 14th including United Airlines.

dream liner delay means massive losses future savings in fuel liquidity of united airlines stock to plumet

While oil is showing signs of easing in the face of a slowly rising US dollar, UAL Corp's original reorganization business plan was based on oil at $50 per barrel, overly optimistic even at that time. Furthermore, United has not managed to wrest any real pricing control from the market. With oil unlikely to dip below $100 anytime soon, it seems almost impossible for United, with its relatively high labor costs, to turn any substantial profit. Short- and long-term debts are large, making it hard to sustain even the current valuation for UAUA.