United Reports Fourth-Quarter and Full-Year Financial Results

UAL Corporation the holding company whose primary subsidiary is United Airlines, reported its fourth-quarter financial results today.

The company incurred a fourth-quarter loss of $1.5 billion, or a loss per basic share of $20.70. This loss includes $77 million in special items and a non-cash tax expense described in the notes to the financial tables. This performance compares to a fourth-quarter 2001 loss of $308 million, or a loss per basic share of $5.68, including special items.

UAL's loss for the full year, including the special items, totals $3.2 billion, or a loss of $53.55 per basic share. This compares to a full-year 2001 loss of $2.1 billion, or a loss of $40.04 per basic share.

The company's results reflect an effective tax rate of zero for 2002. At a statutory tax rate of 36%, the net loss for the quarter would have been $686 million, or a loss per basic share of $9.65, and a net loss for the full year of $2.1 billion or a loss of $34.56 per basic share, excluding special items.

“The biggest single challenge United faced in 2002 was to reduce its costs, the highest in the industry, as the essential underpinning of becoming a competitive, sustainable airline,” said Glenn Tilton, chairman, president and chief executive officer. “And United did everything within its control, slashing costs in every aspect of the business -- without sacrificing reliability and safety -- including reducing capital investments, reducing airline capacity, furloughing employees, obtaining concessions from vendors and more.

Those initiatives were simply not sufficient to address United’s immediate and long-term issues. We now have the opportunity in Chapter 11 to make significant additional changes by working with our unions and others. By making the difficult but critical changes necessary to create a cost-competitive business, United can succeed consistently over time.

“As we move forward in 2003, United will continue to compete aggressively through smart initiatives that take us toward a more compelling customer value proposition," Tilton continued. "We'll achieve that by focusing on areas such as superb operational performance, simplicity of fares, attractive routes, good connectivity and more. Our employees have clearly demonstrated their ability to focus relentlessly on operational excellence and customer service even as we go through the Chapter 11 process. Despite the distractions of  this process, United’s people delivered record operational results, including record-breaking on-time performance. I am grateful for this continued, outstanding effort by our employees as they seek to provide exceptional service to our customers.”

Operational Performance

During 2002, United’s employees set company records and turned in industry-leading performance in a number of areas of critical importance to customers. Highlights from the quarter include:

- The U.S. Department of Transportation ranked United #1 in on-time performance for the first 11 months of 2002.

- United's flight completion rate for 2002 was 99.3 % - an average of only 13 flights per day were cancelled out of approximately 1,700, compared to 99 flights cancelled per day in 2001.

- United successfully transitioned to 100 % inspection of all checked baggage with virtually no direct impact on customers.

- United experienced excellent load factors in 2002, including a record 90.7 % on Monday, Dec. 30.

“I can't say enough about the outstanding work our employees are doing," said Pete McDonald, executive vice president - Operations. "United's people are stepping up to a tremendous challenge every day. United's operational performance is at the top of the industry and it has not gone unnoticed by our customers. I thank our employees for showing our customers that we are committed not only to their safety, but to their comfort as well."

Financial Results

UAL's fourth-quarter 2002 operating revenues were $3.5 billion, up 18 % compared to fourth-quarter 2001. Passenger revenue for the quarter was up 12% from last year on a 6% capacity increase. System passenger unit revenue was up 5% year-over-year, as yields were 2% lower and load factor  increased by 4 points.

United’s load factor for the quarter was 72%, about a point higher than the average for other network carriers and more than four points higher than fourth quarter 2001.

Operating expenses for the quarter were up 16 %. Excluding special items, operating expenses of $4.4 billion were up 15% and the company’s unit cost, excluding its fuel subsidiary, was up 5 %. The unit cost increase was largely a result of the effects of new labor agreements and contractual increases and higher fuel expense. Average fuel price for the quarter was 86.5 cents per gallon, up more than 10% year-over-year. For the full-year, fuel averaged 78.2 cents per gallon, down 10% year-over-year. The company does not have fuel hedges in place for 2003.

During the fourth quarter, UAL recorded a special charge of $67 million for severance related to furloughs announced for various employee groups. UAL also recorded $10 million in reorganization items related to its bankruptcy filing, primarily consisting of professional fees. The company recorded $326 million in additional non-cash tax expense to achieve a zero effective tax rate  for the year. At year end, the company recorded a significant minimum pension liability, resulting in an approximate $2.4 billion non-cash charge to shareholder's equity. The company's current tax situation does not allow this charge to be made net of tax. At a statutory tax rate of 36%, the pension equity  charge would have been $1.5 billion.

UAL ended the quarter with a cash balance of $1.9 billion. UAL's cash balance includes $579 million in restricted cash, including $117 million in long-term  restricted cash. During the quarter, the company received $700 million in cash from its Debtor-In-Possession (DIP) financing arrangements.

Financial Recovery

On Dec. 9, 2002, UAL filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Northern District of Illinois. In connection with its Chapter 11 filing, the company arranged for and has gained court approval of its $1.5 billion in DIP financing provided by Bank One, J.P. Morgan Chase,  Citibank and CIT Group. The company has drawn $700 million on this facility. This financing will help provide UAL with the liquidity necessary to operate in the normal course throughout the reorganization process.

Since December, UAL has made steps forward in restructuring its operations, including reducing 2003 capacity by six percent as compared to 2002;  reorganizing the company’s executive team; realigning divisions; and completing plans to close certain reservation call centers and all U.S. City Ticket Offices. In January, the company also closed stations in Latin America and Europe and announced plans to suspend operations to New Zealand in  March. Overall, the company has to date identified approximately $1.4 billion in annual non-labor cost savings and profit improvements.

On the labor side, in December, the company implemented wage reductions of between approximately three and 11% for United’s salaried and management employees, and was successful in collaboratively negotiating agreements on  interim wage concessions of nine to 29% with four of its six labor unions. United also filed a motion under section 1113 of Chapter 11 of the U.S. Bankruptcy Code in order to achieve interim wage reductions from its two remaining unions; the court approved the company’s motion on Jan. 10, 2003. The interim wage concessions from all six unions total approximately $70 million in monthly labor savings for United effective through May 1, 2003. 

Outlook

UAL expects to report a significant loss for the first quarter of 2003. The company’s domestic booked load factor is about the same as it was last year, though United expects that the mix of business traffic will be down. United’s overall international bookings are somewhat weaker, and the Pacific markets specifically are being affected by a significant increase in industry capacity in  the region. United’s outlook for the quarter could well be affected by the developing situation in Iraq.