United Airlines (UAUA)

As of January 2009, United Airlines CEO Glenn Tilton has the lowest approval rating in the airline industry on the employer-rating website Glassdoor.com.^[1] Furthermore, no other airline has a website (GlennTilton.com) created by pilots dedicated to removing its CEO.^[1] Among other concerns, the pilots are upset about a partnership between United and Aer Lingus that calls for Aer Lingus pilots to take over routes that United pilots currently fly - they call it "outsourcing."^[1] The management-labor tension that Tilton has and will cause can only hurt UAUA as the airline industry focuses more and more on returning to profitability.

Because of skyrocketing fuel prices in 2007-2008, United entered into vast hedging agreements to secure its fuel needs like most other airlines. United secured much of its oil needs at well over $100 per barrel in 2008, but oil prices dropped steadily after July 2008, reaching less than $54 per barrel in November 2008. Because of this, United has been bitten by the otherside of rising fuel costs-being stuck with overvalued hedging contracts. In Q3 2008, for example, United recorded a $519 million loss because of the declining value of its hedging contracts.

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.

First off, if it does have to file for Chapter 11, it won’t be a first either for the company or the industry. Both Delta Air Lines Inc. (NYSE: DAL) and Northwest took that particular walk of shame back in 2005, Frontier, Aloha and Sun Country had to file as recently as 2008 due to the high cost of jet fuel, and United led the way well before in 2002.

Now, seven years later, it’s trying to stay airborne after the double whammy of skyrocketing oil and falling consumer demand. The Federal Aviation Administration sees that pattern continuing for at least the better part of the year, estimating that U.S. passenger traffic will drop 9% this year resulting in a 5.7% revenue drop for the industry.

If United fell that far, it would be a blessing though. Parent company UAL Corporation (Nasdaq: UAUA), said just last week that its traffic was down 13.6% last month as compared to March of last year. In addition, UAL attempted to start Ted, a low-cost airline. If you’ve never heard of it, that’s because it didn’t last very long. UAL discarded it altogether in January, 2009.

Before you know it, the corporation might just have to do that to United.

The massive delays of Boeing's Dreamliner means that United will have to continue to use its rather old, fuel-inefficient fleet, only exacerbating its fuel problems.