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These excerpts taken from the UAUA 10-K filed Mar 2, 2009. The
Company may not be able to maintain adequate
liquidity.
While the Company’s cash flows from operations and its
available capital have been sufficient to meet its current
operating expenses, lease obligations and debt service
requirements to date, the Company’s future liquidity could
be negatively impacted by many factors including, but not
limited to, substantial volatility in the price of fuel,
declines in passenger and cargo demand associated with the weak
global economy and deterioration of global financial systems.
During 2008, particularly in the fourth quarter, the Company
experienced weaker demand for its services due to the current
economic conditions. Decreases in passenger and cargo demand
resulting from a weak global economy have resulted in both lower
passenger volumes and lower ticket fares, which have adversely
impacted our liquidity and are expected to adversely impact our
results of operations and liquidity in 2009. In addition, the
Company’s 2008 and planned 2009 capacity cuts may not be
sufficient to address lower demand from a weak global economy.
See “Economic and industry conditions constantly change and
continued or worsening negative economic conditions in the
United States and elsewhere may have a material adverse effect
on our business and results of operations,” below, for
further discussion of the adverse impacts of a weak economy on
our operations.
In 2008, fuel price changes had a more significant impact on
liquidity than changes in demand for the Company’s products
and services. For example, the crude oil spot price rose to a
record high of approximately $145 per barrel in July 2008. The
Company’s consolidated fuel cost, including the impact of
fuel hedges, increased by more than $3.1 billion for the
full year of 2008 as compared to 2007 primarily due to increased
fuel prices, resulting in a significant negative impact on
liquidity. Furthermore, fuel prices continue to be extremely
volatile which may negatively impact the Company’s
liquidity. Additionally, the Company’s fuel hedges require
that it post cash collateral with applicable counterparties if
crude oil prices change by specified amounts. The Company
provided cash collateral of
Table of Contents
$965 million to its fuel derivative counterparties as of
December 31, 2008, which decreased to $780 million as
of January 19, 2009 primarily due to the settlement of
December 2008 contracts. For more information on our aircraft
fuel hedges, see Note 13, “Fair Value Measurements and
Derivative Instruments,” in Combined Notes to
Consolidated Financial Statements and Item 7A,
Quantitative and Qualitative Disclosures about Market
Risk.
The Company’s current plans to address increased fuel
prices and the weak global economy may not be successful in
improving its results of operations and liquidity. In addition,
the implementation of certain of these plans require the use of
cash for such items as severance payments, lease termination
fees, conversion of Ted aircraft and facility closure costs,
among others. These cash requirements reduce the Company’s
cash available for its ongoing operations. In addition, the
economic downturn may have an adverse impact on travel demand,
which may result in a negative impact on revenues and liquidity.
As described above, the Company is required to comply with
certain financial covenants under its Amended Credit Facility
and certain of its credit card processing agreements. The
factors noted above, among other things, may impair the
Company’s ability to comply with these covenants or could
allow certain of our credit card processors to increase the
required reserves on our advance ticket sales, which could have
an adverse impact on the Company’s financial position and
liquidity, depending on its ability to obtain a waiver of, or
otherwise mitigate, the impact of the default. If a default
occurs under our Amended Credit Facility, the cost to cure any
such default may adversely impact our financial position and
liquidity.
Our level of indebtedness, our non-investment grade credit
rating and the current unfavorable credit market conditions may
make it difficult for us to raise capital to meet liquidity
needs and may increase our cost of borrowing. A higher cost of
capital could negatively impact our results of operations,
financial position and liquidity.
See Item 7, Management’s Discussion and Analysis of
Financial Condition and Results of Operations for further
information regarding the Company’s liquidity.
Economic
and industry conditions constantly change and continued or
worsening negative economic conditions in the United States and
elsewhere may have a material adverse effect on our business and
results of operations.
Our business and results of operations are significantly
impacted by general economic and industry conditions.
Industry-wide passenger air travel varies from year to year.
Robust demand for our air transportation services depends
largely on favorable general economic conditions, including the
strength of the global and local economies, low unemployment
levels, strong consumer confidence levels and the availability
of consumer and business credit. For leisure travelers, air
transportation is often a discretionary purchase that those
consumers can eliminate from their spending in difficult
economic times. In addition, during periods of poor economic
conditions, businesses usually reduce the volume of their
business travel, either due to cost-savings initiatives or as a
result of decreased business activity requiring travel. The
overall demand for air transportation in the U.S. has been
negatively impacted by adverse changes and continued
deterioration in the health of the U.S. and global
economies which negatively impacted our results of operations
for the year ended December 31, 2008, and could continue to
have a significant negative impact on our future results of
operations for an extended period of time. Since the end of
2008, the outlook for key economic indicators has deteriorated
and credit card activity and advance bookings have not been as
strong as in the prior year. These factors are expected to
negatively impact the Company’s 2009 passenger and cargo
revenues. In addition, decreases in cargo revenues due to lower
demand have a disproportionate impact on our operating results
as our cargo revenues generally have higher margins as compared
to our passenger revenues. Continuation or worsening of the
current global recession may lead the Company and other carriers
to further reduce domestic or international capacity and may
have a material adverse effect on the Company’s revenues,
results of operations and liquidity.
Table of Contents
Continued
periods of historically high fuel costs or significant
disruptions in the supply of aircraft fuel could have a material
adverse impact on the Company’s operating
results.
The Company’s operating results have been, and continue to
be, significantly impacted by changes in the supply or price of
aircraft fuel, both of which are impossible to predict. The
record-high fuel prices each year from 2005 through 2007
increased in 2008 to new record highs with the crude oil spot
price reaching highs of approximately $145 per barrel in July of
2008. At times, United has not been able to increase its fares
when fuel prices have risen due to the highly competitive nature
of the airline industry, and it may not be able to do so in the
future and such increases may not be sustainable in the highly
competitive environment. In addition, fare increases may not
totally offset the fuel price increase and may also reduce
demand for air travel. From time to time, the Company enters
into hedging arrangements to protect against rising fuel costs.
The Company’s hedging programs may use significant amounts
of cash due to posting of cash collateral in some circumstances,
may not be successful in controlling fuel costs and may be
limited due to market conditions and other factors. See
Note 13, “Fair Value Measurements and Derivative
Instruments,” in Combined Notes to Consolidated
Financial Statements for additional information on the
Company’s hedging programs.
The Company may not be able to maintain adequate liquidity. While the Company’s cash flows from operations and its available capital have been sufficient to meet its current operating expenses, lease obligations and debt service requirements to date, the Company’s future liquidity could be negatively impacted by many factors including, but not limited to, substantial volatility in the price of fuel, declines in passenger and cargo demand associated with the weak global economy and deterioration of global financial systems. During 2008, particularly in the fourth quarter, the Company experienced weaker demand for its services due to the current economic conditions. Decreases in passenger and cargo demand resulting from a weak global economy have resulted in both lower passenger volumes and lower ticket fares, which have adversely impacted our liquidity and are expected to adversely impact our results of operations and liquidity in 2009. In addition, the Company’s 2008 and planned 2009 capacity cuts may not be sufficient to address lower demand from a weak global economy. See “Economic and industry conditions constantly change and continued or worsening negative economic conditions in the United States and elsewhere may have a material adverse effect on our business and results of operations,” below, for further discussion of the adverse impacts of a weak economy on our operations. In 2008, fuel price changes had a more significant impact on liquidity than changes in demand for the Company’s products and services. For example, the crude oil spot price rose to a record high of approximately $145 per barrel in July 2008. The Company’s consolidated fuel cost, including the impact of fuel hedges, increased by more than $3.1 billion for the full year of 2008 as compared to 2007 primarily due to increased fuel prices, resulting in a significant negative impact on liquidity. Furthermore, fuel prices continue to be extremely volatile which may negatively impact the Company’s liquidity. Additionally, the Company’s fuel hedges require that it post cash collateral with applicable counterparties if crude oil prices change by specified amounts. The Company provided cash collateral of
Table of Contents$965 million to its fuel derivative counterparties as of December 31, 2008, which decreased to $780 million as of January 19, 2009 primarily due to the settlement of December 2008 contracts. For more information on our aircraft fuel hedges, see Note 13, “Fair Value Measurements and Derivative Instruments,” in Combined Notes to Consolidated Financial Statements and Item 7A, Quantitative and Qualitative Disclosures about Market Risk. The Company’s current plans to address increased fuel prices and the weak global economy may not be successful in improving its results of operations and liquidity. In addition, the implementation of certain of these plans require the use of cash for such items as severance payments, lease termination fees, conversion of Ted aircraft and facility closure costs, among others. These cash requirements reduce the Company’s cash available for its ongoing operations. In addition, the economic downturn may have an adverse impact on travel demand, which may result in a negative impact on revenues and liquidity. As described above, the Company is required to comply with certain financial covenants under its Amended Credit Facility and certain of its credit card processing agreements. The factors noted above, among other things, may impair the Company’s ability to comply with these covenants or could allow certain of our credit card processors to increase the required reserves on our advance ticket sales, which could have an adverse impact on the Company’s financial position and liquidity, depending on its ability to obtain a waiver of, or otherwise mitigate, the impact of the default. If a default occurs under our Amended Credit Facility, the cost to cure any such default may adversely impact our financial position and liquidity. Our level of indebtedness, our non-investment grade credit rating and the current unfavorable credit market conditions may make it difficult for us to raise capital to meet liquidity needs and may increase our cost of borrowing. A higher cost of capital could negatively impact our results of operations, financial position and liquidity. See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations for further information regarding the Company’s liquidity. Economic and industry conditions constantly change and continued or worsening negative economic conditions in the United States and elsewhere may have a material adverse effect on our business and results of operations. Our business and results of operations are significantly impacted by general economic and industry conditions. Industry-wide passenger air travel varies from year to year. Robust demand for our air transportation services depends largely on favorable general economic conditions, including the strength of the global and local economies, low unemployment levels, strong consumer confidence levels and the availability of consumer and business credit. For leisure travelers, air transportation is often a discretionary purchase that those consumers can eliminate from their spending in difficult economic times. In addition, during periods of poor economic conditions, businesses usually reduce the volume of their business travel, either due to cost-savings initiatives or as a result of decreased business activity requiring travel. The overall demand for air transportation in the U.S. has been negatively impacted by adverse changes and continued deterioration in the health of the U.S. and global economies which negatively impacted our results of operations for the year ended December 31, 2008, and could continue to have a significant negative impact on our future results of operations for an extended period of time. Since the end of 2008, the outlook for key economic indicators has deteriorated and credit card activity and advance bookings have not been as strong as in the prior year. These factors are expected to negatively impact the Company’s 2009 passenger and cargo revenues. In addition, decreases in cargo revenues due to lower demand have a disproportionate impact on our operating results as our cargo revenues generally have higher margins as compared to our passenger revenues. Continuation or worsening of the current global recession may lead the Company and other carriers to further reduce domestic or international capacity and may have a material adverse effect on the Company’s revenues, results of operations and liquidity.
Table of ContentsContinued periods of historically high fuel costs or significant disruptions in the supply of aircraft fuel could have a material adverse impact on the Company’s operating results. The Company’s operating results have been, and continue to be, significantly impacted by changes in the supply or price of aircraft fuel, both of which are impossible to predict. The record-high fuel prices each year from 2005 through 2007 increased in 2008 to new record highs with the crude oil spot price reaching highs of approximately $145 per barrel in July of 2008. At times, United has not been able to increase its fares when fuel prices have risen due to the highly competitive nature of the airline industry, and it may not be able to do so in the future and such increases may not be sustainable in the highly competitive environment. In addition, fare increases may not totally offset the fuel price increase and may also reduce demand for air travel. From time to time, the Company enters into hedging arrangements to protect against rising fuel costs. The Company’s hedging programs may use significant amounts of cash due to posting of cash collateral in some circumstances, may not be successful in controlling fuel costs and may be limited due to market conditions and other factors. See Note 13, “Fair Value Measurements and Derivative Instruments,” in Combined Notes to Consolidated Financial Statements for additional information on the Company’s hedging programs. This excerpt taken from the UAUA 10-Q filed Jul 24, 2008. The Company may not be able to maintain adequate liquidity. While the Company's cash flows from operations and its available capital have been sufficient to meet its current operating expenses, lease obligations and debt service requirements to date, the Company's future liquidity could be negatively impacted by many factors including, but not limited to, the substantial increase in the price of fuel from 2007 levels. The crude oil spot price rose to a record high of approximately $140 per barrel in the second quarter of 2008. Based on fuel prices at recent levels, the Company's consolidated fuel cost is expected to increase by more than 50%, or approximately $3.5 billion, in the full year of 2008 as compared to 2007, resulting in a negative impact on liquidity. See Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for further information regarding the Company's liquidity. The Company's current plans to address increased fuel prices may not be successful in improving its results of operations and liquidity. The Company will be required to use cash to implement its plans for such items as severance payments, lease termination fees, conversion of Ted aircraft, and facility closure costs, among others. These cash requirements will reduce the Company's cash available for its ongoing operations. The Company may not achieve necessary increases in unit revenue from the capacity reductions announced by the Company and certain of its competitors. Further, certain of the Company's competitors may not reduce capacity and may increase capacity, thereby diminishing our expected benefit from capacity reductions. Higher fares may have an adverse impact on travel demand, which may result in a negative impact on revenues. Fuel prices are extremely volatile. At certain fuel 66 price levels, our current cost structure, inclusive of our current plans, may exceed the costs required to operate profitably. The Company is required to maintain unrestricted cash of $1.0 billion under its Amended Credit Facility. In addition to those described above, other factors may impair the Company's ability to comply with this covenant. Negative financial results and other factors could lead to a financial covenant breach or a material adverse change that could allow certain of our credit card processors to increase the required reserves on our advance ticket sales ("holdbacks"). Such holdback increases could adversely impact our financial position and liquidity. Our level of indebtedness, our non-investment grade credit rating, and the current unfavorable credit market conditions may make it difficult for us to raise capital to meet liquidity needs and may increase our cost of borrowing. A higher cost of capital could negatively impact our results of operations, financial position and liquidity. If a default occurs under our credit facility, the cost to cure any such default may adversely impact our financial position and liquidity. Due to the factors above, and other factors, we may be unable to comply with our Amended Credit Facility covenant that requires a minimum ratio of EBITDAR to fixed charges beginning in the second quarter of 2009. Failure to comply with this covenant or our $1.0 billion unrestricted cash covenant could result in the lenders requiring us to repay our outstanding debt which could have an adverse impact on the Company's financial position and liquidity, depending on its ability to obtain a waiver of, or otherwise mitigate, the impact of the default. If a default occurs under our credit facility, the cost to cure any such default may adversely impact our financial position and liquidity. If we do not comply with the covenants and restrictions in our credit facility agreement, indentures or instruments governing our other indebtedness, we could be in default under those agreements, and the debt incurred under those agreements, together with accrued interest, could then be declared immediately due and payable. If we are unable to repay any borrowings when due, the lenders under our credit facility agreement could proceed against their collateral, which includes a substantial amount of the assets we own. In addition, any default under our credit facility agreement or agreements governing our other indebtedness could lead to an acceleration of debt under other debt instruments that contain cross acceleration or cross-default provisions. If the indebtedness under our credit facility agreement and our other debt instruments is accelerated, we may not have sufficient assets to repay amounts due under our credit facility agreement or indebtedness under our other debt instruments. Our ability to comply with these provisions of our credit facility agreement, our indentures and other agreements governing our other indebtedness may be affected by the factors discussed above or other events beyond our control. | EXCERPTS ON THIS PAGE:
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