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Operating Loss Narrows at United: $21.18 Billion Net Loss As Bankruptcy Ending

Posted on: Saturday, 28 January 2006, 15:00 CST

By Mark Skertic, Chicago Tribune

Jan. 28--On the brink of exiting bankruptcy protection, United Airlines reduced its operating loss in 2005 but failed to post a profit.

Elk Grove Township-based UAL Corp., United's parent, on Friday reported an operating loss of $219 million for the year, an improvement from the $854 million loss the previous year.

The airline reported $1 billion in increased revenue and a $1 billion reduction in non-fuel costs, although spending for fuel was $1.4 billion higher than the prior year.

United plans to exit bankruptcy on Wednesday, and stock in the reorganized company will begin trading the next day on the Nasdaq stock exchange under the symbol UAUA. Existing shares in United will be canceled, making them worthless.

The net loss for the year was $21.18 billion, up from $1.72 billion in 2004. Most of the year's deficit was recorded in the fourth quarter, with a record $16.9 billion net loss. While daunting, those numbers are misleading on the eve of an exit from bankruptcy.

"It is important to look at our operating earnings as the best measure of our performance, and in every year of our restructuring, operating earnings have steadily improved at United," Chief Executive Glenn Tilton said in a message to employees.

About $16.6 billion of the net loss is due to non-cash bankruptcy charges that will be reversed when United settles unsecured claims in the coming weeks. As a result, accounting that reflects those settlements will leave United with a net multibillion-dollar gain in the first quarter of 2006.

"Fuel remains a challenge for the industry, but because of the restructuring we've done, we believe we're as well positioned as anyone to combat higher fuel costs," said Jake Brace, chief financial officer. "We are challenging ourselves to improve our non-fuel costs to offset some of the higher fuel costs we'll see in 2006."

The average price for a gallon of fuel increased 43 percent in 2005, to $1.79 a gallon.

United's operating expenses per available seat mile, an industry measure of efficiency, was 10.6 cents, up about 3.8 cents. Higher fuel costs were primarily blamed for the increase.

United has been able to lower its costs, but it will have to continue to push them lower post-bankruptcy, said analyst Ray Neidl of Calyon Securities.

"It's harder to get it down when not in bankruptcy, but they're going to have to work on it," he said, "because Northwest, Delta, other airlines, that's their goal as well."

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Source: Chicago Tribune

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