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Jan 21, 2009

UAL Corp Posts Wider Loss, Targets 1,000 More Job Cuts

United Airlines parent UAL Corp. said its quarterly net loss widened to $1.3 billion as the third-largest U.S. carrier paid above-market rates for fuel after incorrectly betting prices would rise. United said it would cut 1,000 additional jobs.

The fourth-quarter net loss of $9.91 a share compares with a loss of $53 million, or 47 cents, a year earlier, Chicago- based UAL said today. Excluding costs tied to fuel-hedging contracts and other items, the loss was $555 million, or $4.22 a share, less than analysts expected.

United’s decision to cut additional management and salaried jobs reflects efforts by carriers to control costs and conserve cash as demand declines in the recession. The economic slump is affecting travel in U.S. and international markets, Chief Operating Officer John Tague said. United’s job cuts will total 9,000 by year end.

“As an industry, we are clearly seeing less demand for our product,” Tague, 46, said on a conference call. Passengers “are not only traveling less, but buying down from premium cabins to coach cabins. We are seeing double-digit declines in international premium traffic.”

UAL fell 71 cents, or 6.1 percent, to $10.91 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have lost 67 percent of their value in the past 12 months.

Sales Fall 9.6%

Excluding fuel contract and other costs, UAL was expected to report a loss of $4.41 a share, the average of 12 analysts in a Bloomberg survey.

Sales fell 9.6 percent to $4.55 billion.

United earlier eliminated 1,500 management positions and today said it’s close to finishing 6,500 unionized cuts, more than its initial forecast last year of 5,500 union jobs. In most cases, union employees accepted voluntary furloughs or leaves.

“These are difficult actions as they impact our people, but are the responsible steps to take in an environment of reduced capacity and demand,” Chief Executive Officer Glenn Tilton said today in an e-mail to employees about the expanded job cuts.

UAL joined American Airlines parent AMR Corp. in reporting a fourth-quarter loss. American also said it would further reduce capacity this year. The nine biggest carriers will have a combined operating deficit of $1.25 billion, according to Kevin Crissey, a UBS Securities LLC analyst.

Capacity to Shrink

Capacity in United’s main jet fleet will fall as much as 9.5 percent this year, down from an initial planned reduction of as much as 11 percent. Capacity will decline as much as 8 percent when regional airline partners are included, down from the original plan of as much as 9 percent.

The changes are a result of “fine tuning” the timing of removing 100 planes from its fleet by year end, Chief Financial Officer Kathryn Mikells said on the call. The carrier pulled 51 of those jets in 2008.

United’s attempt to protect against soaring jet-fuel costs in early 2008 backfired when rates collapsed and left it paying more than spot market prices. So-called hedging contracts have kept United and other carriers from fully benefiting from a 67 percent drop in the price of jet fuel since a July 3 record.

UAL’s fourth-quarter results include $370 million in cash losses on fuel contracts that settled in the quarter and $566 million in non-cash losses to adjust contracts to current market values.

‘Behind Us’

“Our fuel-hedging collateral issues have peaked,” Mikells said. “They are behind us. Effectively, that cash went out the door in the third and fourth quarters.”

United ended the quarter with $2 billion in unrestricted cash, down from $2.9 billion at the end of September. The company also had $272 million in cash dedicated to specific uses and $965 million in cash deposits held by its partners in hedging contracts.

The company expects to raise about $350 million in new liquidity by the end of this quarter, including $160 million from an agreement to relocate a cargo facility at Chicago’s O’Hare airport.

Source : Bloomberg
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