United Airlines Holdings, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. UAL is the holding company for United Airlines, Inc.; the combined filing reports substantially the same operating business and financial position for both.
Business context and results
The COVID-19 pandemic and related travel restrictions sharply reduced demand. Management reported modest demand improvement during Q3, but described the duration and pace of recovery as highly uncertain.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Operating revenue | $2.489 billion | $11.380 billion | $11.943 billion | $32.371 billion |
| Operating income (loss) | ($1.615 billion) | $1.473 billion | ($4.224 billion) | $3.440 billion |
| Net income (loss) | ($1.841 billion) | $1.024 billion | ($5.172 billion) | $2.368 billion |
| Diluted EPS | ($6.33) | $3.99 | ($18.91) | $9.04 |
| Operating cash flow | Not separately stated for the quarter | Not separately stated for the quarter | ($1.956 billion) | $5.728 billion |
Revenue, operating metrics and material changes
- Q3 passenger revenue fell 84.3% to $1.649 billion; cargo revenue rose 49.6% to $422 million, supported by cargo-only charter flights and demand for critical goods. Other revenue declined 32.3% to $418 million.
- Q3 traffic (revenue passenger miles) fell 83.6%, while capacity (available seat miles) fell 70.4%. Load factor declined to 47.8% from 86.1%; passenger revenue per available seat mile fell 46.8% to 7.42 cents.
- Q3 operating expenses declined 58.6% to $4.104 billion, less than the 78.1% revenue decline. Fuel expense fell 77.9%, while depreciation and amortization increased 8.9%.
- Reported Q3 operating expenses included a $1.494 billion CARES Act grant credit. The filing reports CASM of 18.48 cents, up 40.0% year over year; this measure is not adjusted here for the grant credit.
- For the first nine months, revenue declined 63.1%; passenger revenue declined 68.4%. Operating expenses fell 44.1%, and CASM rose 29.8% to 17.55 cents.
Liquidity, debt and financial position
- At September 30, UAL had $13.150 billion of cash and cash equivalents, $552 million of short-term investments, and $248 million of restricted cash. Management reported $13.7 billion of unrestricted cash, cash equivalents and short-term investments.
- Cash, cash equivalents and restricted cash increased by $10.530 billion over the first nine months. Financing cash flow was $12.476 billion, including $13.024 billion of debt issuance proceeds and $1.135 billion of equity proceeds; operating cash flow was negative $1.956 billion.
- Long-term debt, including current maturities, was $26.881 billion at quarter-end, versus $14.552 billion at December 31, 2019. Management reported approximately $33.8 billion of debt, lease and sale-leaseback obligations, including $5.4 billion due within 12 months.
- Current assets exceeded current liabilities by approximately $685 million. Current liabilities included $4.907 billion of advance ticket sales; $3.0 billion of the liability related to travel credits, and the company said it could not estimate how much would be used within 12 months.
- The company reported $4.7 billion of remaining availability under the CARES Act loan program and $1.0 billion available under its revolving credit facility. It was in compliance with debt covenants at September 30.
Outlook, management actions and notable items
- Management expected Q4 scheduled capacity to be approximately 55% below 2019 levels and anticipated demand could remain near 50% of 2019 levels until an accepted COVID-19 treatment or vaccine was widely available. It cautioned that recovery may not be linear and actual flown capacity could differ materially from schedules.
- UAL received approximately $5.1 billion under the CARES Act Payroll Support Program: approximately $3.6 billion in grant funding and $1.5 billion in a 10-year promissory note. It recognized $3.1 billion of grant income through September 30 and expected to recognize the remaining grant credit in Q4 as eligible wages were incurred.
- United borrowed $520 million under a Treasury term loan facility on September 28. The facility was initially up to approximately $5.2 billion; a potential increase to $7.5 billion was subject to Treasury approval and collateral availability.
- Actions included reduced capacity and capital spending, cost reductions, temporary fleet groundings, and termination of the share repurchase program. The company reduced planned involuntary furloughs from approximately 36,000 notices to approximately 13,000, alongside voluntary programs.
- Material unusual items included $697 million of expected credit loss allowance for the BRW loan and related guarantee; $646 million of nonoperating pension settlement losses and special termination benefits for the nine-month period; and $130 million of impairment charges for China routes. The BRW loan collateral and recovery remained uncertain amid Avianca’s Chapter 11 proceedings.
- Key risks include prolonged weak travel demand, refunds and credit-card reserve requirements, substantial debt and fixed obligations, restrictions and collateral requirements under financing agreements, possible asset impairments, and Boeing 737 MAX delivery delays. The filing notes potential repayment of approximately $450 million of MAX-related debt if specified conditions occur.
Important facts for investors to verify
- Whether travel demand, passenger load factors and revenue recover enough to reduce cash burn, and how actual capacity compares with management’s schedule assumptions.
- How much of the $3.0 billion in travel credits is redeemed, refunded or recognized as revenue, and whether credit-card processors require additional reserves.
- Liquidity and debt maturities, access to remaining CARES Act and revolving facilities, collateral availability, and compliance with financing covenants.
- Final availability and terms of the Treasury loan facility, including collateral and warrant-related dilution; also monitor any further equity issuance.
- Recovery prospects for the BRW/Avianca-related loans and guarantees, future impairment charges, and the timing and financial impact of Boeing 737 MAX deliveries.