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UAL, Delta limit losses
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November 1, 2001: 1:36 p.m. ET
Stung by attacks, United parent posts net loss of $1.2B; warns on 4Q.
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NEW YORK (CNNmoney) - Two of the nation's three largest airlines posted smaller-than-expected operating losses in the third quarter, although one of them - United Airlines' parent UAL Corp. - warned that its loss will increase in the current period.
Still, despite the smaller-than-expected operating loss, the sharp drop in air travel in the wake of the Sept. 11 terrorist attack pushed the net loss at UAL over $1 billion for the quarter, the worst in the company's history.
UAL, the world's second-largest airline company behind American Airlines owner AMR Corp., lost $542 million, or $10.05 a share, in the quarter excluding special items. Analysts surveyed by earnings tracker First Call had forecast a loss of $10.27 a share, wider than the $70 million, or $1.29 a share, loss excluding special items it posted a year earlier.
Meanwhile Delta Air Lines, the No. 3 airline company, lost $295 million, or $2.43 a share, in the quarter, excluding special items, which put it below First Call's forecast of a $2.70 a share loss. The company earned $273 million, or $2.08 a share, a year earlier.
Delta also missed First Call's revenue forecast of $3.84 billion as revenue fell to $3.40 billion from $4.35 billion.
Shares of UAL (UAL: up $0.38 to $13.10, Research, Estimates) and Delta (DAL: up $0.80 to $23.66, Research, Estimates) rose Thursday, as did most major airline stocks.
All major airlines have seen steep drop-off in travel in the wake of the Sept. 11 terrorist attack, and most carriers, including UAL and Delta, had been expected to lose money in the quarter even before the attack due to a decline in business travel with the general slowing of the economy.
Most major carriers have cut their capacity and staffing levels in the neighborhood of 20 percent since the attack, and are taking charges for grounding jets and laying off employees. The major carriers also received federal assistance as part of a $5 billion industry bailout passed by Congress in the wake of the attack.
Including those charges and bailout payments, UAL posted a net loss of about $1.2 billion, or $21.43 a share, up from the net loss of $116 million, or $2.30 a share loss, it posted a year earlier. At Delta the federal payment actually shaved the net loss to $259 million, or $2.13 a share in the most recent period, compared with net income of $129 million, or $1.77, a share, a year earlier.
United executives said that further cuts in schedule could yet be necessary if traffic does not show improvement.
"We don't see the industry has reached equilibrium yet," said Jake Brace, the company's chief financial officer, in comments to analysts.
UAL said revenue fell 16 percent to $4.1 billion from $4.9 billion a year earlier. The miles flown by paying passengers was down 6.4 percent in the quarter.
The company warned that its fourth-quarter loss excluding special items will be substantially larger than the third-quarter loss. But while it gave some guidance on traffic and cost estimates, it did not give a new loss-per-share range. First Call currently forecasts the per share loss to widen to $13.34 in the fourth quarter.
UAL executives insist that the company has the financial resources to turn around the company. The company ended the quarter with about $2.7 billion in cash and cash equivalents, and said that ongoing losses are reducing those reserves by about $15 million a day.
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"That's considerably less than some external estimate I've seen," said Brace. He said that the company believes it can add $1 billion in cash during the fourth quarter from further federal payments and existing lines of credit.
Former UAL CEO Jim Goodwin wrote a letter to employees last month that said the company is hemorrhaging money and that its survival is in doubt, a move that angered some of the unions at the employee-owned company and helped lead to his departure from on Monday. UAL executives said that they are making progress in talks with its unions about concessions that may be needed to stem losses, and they chafed when one analyst suggested that the unions were calling the shot at UAL.
The International Association of Machinists and the Air Line Pilots Association each have a representative on the board of directors and the IAM called for Goodwin's removal last week, citing the letter as problem. Members of those two unions own about 45 percent of the company through an employee stock ownership plan.
"We want to move onto the future. Jim Goodwin's letter and what happened is very much in the past," said Rono Dutta, UAL's president. "The board decided, and Jim Goodwin decided, it was right time for Jim to leave and for the company to have new leadership. I don't think any individual member made that decision."
UAL executives repeated statements from earlier this week they were looking at a broad range of possible cost cuts, including changes in the labor agreements with the airline's six unions.
It also repeated earlier statements that it will now look for a equity partner to fund the investment needs of its new venture to buy and sublease corporate jets on a partial-share basis. United's decision to make some of the those corporate jet purchases in the wake of the Sept. 11 attack was another issue that angered its unions.
Delta cutting spending
Delta also said it is looking at cutting back spending, saying it would cut its 2001 capital expenditure from pre-Sept. 11 expectations by $650 million to only $2.6 billion, mainly in fleet, ground equipment, and technology spending.
It has cut its 2002 capital expenditure by $1 billion to a level of $1.8 billion.
It also said it is in negotiations with aircraft manufacturer Boeing Co. to delay or cancel orders for about 30 new jets, since it doesn't see needs for any new jet deliveries until after 2003. It also is seeking to defer the purchases of eight regional jets from Canadian aircraft maker Bombardier.
The airline expects to end 2001 with about $2.3 billion in cash on hand. 
Copyright 2001 Reuters All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Reuters contributed to this report
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