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United's Net Loss Widens As Reorganization Costs Erase Operating Profit

Posted on: Thursday, 28 July 2005, 21:00 CDT

Jul. 29--United Airlines' parent company, hoping to leave bankruptcy protection in the fall, lost $1.43 billion in the second quarter, largely due to bankruptcy reorganization costs, the company said.

Elk Grove Township-based UAL Corp. had a net loss of $247 million during the same period a year ago. This year's second-quarter loss amounted to $12.33 a share, compared with $2.25 a share a year ago.

United plans to file a reorganization plan for its exit from Chapter 11 protection with the bankruptcy court in Chicago next week.

United's second-quarter operating profit, which excludes reorganization costs and other non-operating items, was $48 million, up from $7 million a year before.

The results reported Thursday are encouraging, Chief Executive Glenn Tilton told employees in a recorded telephone message.

"Although by no means sufficient, these results show significant progress for the company, particularly given the dramatically uncompetitive position we were in three years ago," he said.

The second quarter of the year, which includes spring break and early summer vacation, is typically a good one for most airlines. Both American Airlines and Continental Airlines reported net profits for the quarter, good news that has been a rare for the industry's largest carriers.

Excluding reorganization expenses and special operating items, United would have shaved its quarterly net loss to $26 million, the airline said. Costs included a $602 million charge for turning its pension obligations over to the federal government's pension insurance agency.

United also spent $509 million to reject contracts and $212 million on the rejection of aircraft. United said it expects to actually pay less--a "minor fraction"--of those reorganization charges by taking advantage of protections given by the bankruptcy court.

The largest uncontrolled expense continues to be fuel, which was $955 million, up 38 percent from the second quarter of 2004.

Coping with record fuel prices remains a challenge for the industry, said Jake Brace, United's chief financial officer.

"At this level of fuel ... the industry will slowly but surely respond with higher fares, in my judgment," he said. "I don't think anyone's business model is designed to produce strong profits in an environment where fuel prices are hovering around $60 a barrel."

When it leaves bankruptcy protection, United will "have the right cost structure and already has a powerful franchise with good worldwide name recognition," Ray Neidl, airline analyst with Calyon Securities, said Friday.

He said the greatest threat to the airline now is "possible employee retaliation," referring to threatened unannounced walkouts by flight attendants angry over the termination of their pensions, a move that will cost workers many tens of thousands of dollars in anticipated retirement income.

The Association of Flight Attendants held protests at 20 airports internationally Friday. About 40 protesters wearing green T-shirts gathered at O'Hare International Airport.

The carrier's management "has been stubborn and has moved forward with termination of a viable pension plan," said spokeswoman Sara Nelson Dela Cruz. "That's our pension plan. We have a proposal on the table to shore up the pension funding shortfall, and they refuse to talk about that. All they want to talk about is replacing our pensions."

United has said it could no longer afford pension obligations, and it has offered to replace them with a less-expensive benefit, such as a 401(k).

In other earnings news:

--Fiscal third-quarter earnings for Andrew Corp. dropped to $13.0 million, or 8 cents a share, down from $17.8 million, or 11 cents a share after preferred dividends, in the year-earlier period. The poor results led to a nearly 20 percent drop in the price of Andrew's shares, which lost $2.63, to $11.30, on the Nasdaq stock market.

The Orland Park-based maker of wireless towers and electronics equipment had a gloomy outlook for its fourth quarter, which an analyst said probably was the major reason the stock drop. "Results from the current quarter were disappointing, but at the low end of the company's guidance," said Jay Ritter, a telecom analyst with Zacks Investment Research Inc. "But they're looking at a big miss for the September quarter, and that's what investors focused on."

Revenue for the quarter was $487.2 million, down slightly from $493.0 million in the year-earlier period. Sales in the company's satellite communications segment were down 65 percent.

Andrew, which makes coaxial cable for cell phone towers, said its bottom line was hurt by high prices for copper. The firm uses about 60 million pounds of copper a year.

--Alberto-Culver Co. said fiscal third-quarter sales increased 9.2 percent, to $898.9 million. Net income for the Melrose Park maker of personal grooming products was $53.4 million, or 57 cents a diluted share, up 3.7 percent from $51.5 million, or 56 cents a share, in the year-earlier period.

The company's stock gained $3.10, to $46.15, on the New York Stock Exchange.

--CNA Financial Corp. said second-quarter profit fell 1.7 percent on fewer investment gains. Net income dropped to $288 million, or $1.06 per common share, from $293 million, or $1.08 a share, a year earlier. Profit excluding the investment gains was $1 a share, higher than the 70 cent average estimate of analysts polled by Thomson Financial.

CNA shares climbed 25 cents, to $29.75, on the NYSE.

Tribune staff reporter Erika Slife and Tribune wires contributed to this report.

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Source: Chicago Tribune

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