United Airlines Holdings, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. UAL is the holding company for United Airlines, Inc.; their operating results are substantially the same. Comparisons are with Q1 2020.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Operating revenue | $3.221 billion | $7.979 billion |
| Operating loss | $1.381 billion | $972 million |
| Net loss | $1.357 billion | $1.704 billion |
| Loss per share, diluted | $4.29 | $6.86 |
| Operating cash flow | $447 million | $63 million |
| Capital expenditures | $444 million | $1.959 billion |
| Cash, cash equivalents and restricted cash at quarter end | $13.138 billion | $3.548 billion |
Passenger revenue fell 67.2% to $2.316 billion, while cargo revenue rose 88.3% to $497 million. Operating expenses declined 48.6% to $4.602 billion, less than the revenue decline. The reported operating loss includes a $1.810 billion government-grant credit, partly offset by $417 million of severance and benefit costs; therefore, reported results reflect substantial unusual items.
At March 31, cash and cash equivalents were $12.666 billion and short-term investments were $309 million. Management reported $13.0 billion of unrestricted cash, cash equivalents and short-term investments. Long-term debt carrying value was $27.632 billion, including current maturities; total debt, lease and sale-leaseback obligations were approximately $35.3 billion, of which $2.6 billion was due within 12 months. The company reported $5.206 billion of UAL stockholders’ equity and $14.167 billion of current liabilities.
Material changes versus prior year
- Total revenue declined 59.6%, with passenger revenue down $4.749 billion. Passenger traffic fell 60.1%, capacity 50.2%, and load factor declined 14.1 percentage points to 56.8%.
- Cargo revenue increased $233 million, supported by more cargo-only flying and higher yields. Passenger and other operating revenue remained pressured by reduced travel and partner mileage activity.
- Operating loss widened by $409 million despite lower expenses. Net loss improved by $347 million, partly reflecting lower prior-year investment and credit losses, including the absence of the $697 million BRW-related credit-loss charge recorded in Q1 2020.
- Interest expense rose to $353 million from $171 million, primarily because of additional pandemic-related borrowing. The company issued approximately $532 million of stock and recorded $1.336 billion of debt proceeds during the quarter.
- Operating cash flow increased, but the filing attributes the improvement principally to $1.8 billion of PSP2 grant funding, offset by continuing operating losses.
Outlook, risks and unusual items
- COVID-19 and related travel restrictions materially affected demand, results, liquidity and operations. Scheduled Q1 capacity was about 54% below Q1 2019; management expected Q2 capacity to be about 45% below Q2 2019. It reported improving demand since March 2021 but gave no clear return-to-profitability timetable.
- Management expected 2021 liquidity needs to be met through existing liquidity and said it had identified $1.9 billion of annual cost savings, with a path to at least $2.0 billion in structural reductions. Recovery timing remains uncertain and depends on vaccination, virus variants and government travel restrictions.
- The company expected approximately $2.8 billion in PSP3 assistance, including about $0.8 billion in unsecured loans, and expected to issue Treasury warrants for up to approximately 1.5 million shares. These were expectations as of the filing.
- After quarter end, on April 21, United issued $4.0 billion of secured notes and borrowed $5.0 billion under a new term loan facility, alongside a $1.75 billion revolving facility. Proceeds repaid specified prior facilities and were also available for general corporate purposes. The new secured financing pledged certain route authorities, airport slots and terminal-use rights.
- Advance ticket sales were $5.502 billion, including $2.8 billion of travel certificates and future flight credits. The company could not estimate how much would be used, refunded, exchanged or recognized as revenue in 2021.
- Other significant exposures include $23.7 billion of capital commitments, $12.4 billion of estimated future regional capacity-purchase payments, below-investment-grade credit ratings, and substantial fixed obligations. The company reported compliance with debt covenants at March 31.
- Approximately 4,500 employees elected voluntary separation. United temporarily removed 52 Boeing 777-200/200ER aircraft from its schedule after an engine incident; it recorded no impairment after concluding the fleet’s carrying value was recoverable.
Investor verification points
- Track passenger demand, capacity, load factor, fares and the pace of recovery against the disclosed Q2 capacity plan.
- Separate recurring operating performance from government grants, employee separation costs and other special items; assess cash generation excluding government support.
- Verify PSP3 funding and conditions, and the cash-flow and dilution effects of related loans and warrants.
- Review post-quarter refinancing terms, collateral pledged, debt maturities and total fixed obligations.
- Monitor the use, refund and eventual revenue recognition of the $2.8 billion in ticket credits, as well as capital commitments and liquidity needs.