United Airlines Holdings, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. UAL is the holding company for United Airlines, Inc.; United comprises nearly all consolidated revenue, expenses, assets, liabilities and operating cash flow. Figures below are in U.S. dollars unless noted.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Operating revenue | $5.471B | $1.475B | $8.692B | $9.454B |
| Operating loss | $(270)M | $(1.637)B | $(1.651)B | $(2.609)B |
| Net loss | $(434)M | $(1.627)B | $(1.791)B | $(3.331)B |
| UAL diluted loss per share | $(1.34) | $(5.79) | $(5.60) | $(12.59) |
Q2 operating margin was approximately negative 4.9% (versus negative 111% in the severely disrupted year-ago quarter); six-month operating margin was approximately negative 19.0%. Q2 passenger revenue was $4.366B, cargo revenue $606M and other revenue $499M. For the first half, passenger revenue fell 13.7% year over year while cargo revenue rose 65.6%.
- Costs: Q2 operating expense was $5.741B, up 84.5% year over year as flying resumed. Fuel expense increased to $1.232B, with average fuel price up 66.9% and gallons consumed up 206.4%. Six-month operating expense fell 14.3% to $10.343B, including substantial government grant credits.
- Cash flow: First-half operating cash flow was $3.122B, compared with cash used of $67M in 2020. Management attributed the improvement partly to $4.1B of PSP2/PSP3 government funding and partly to recovering passenger demand. Investing cash use was $1.110B; financing provided $7.554B.
- Liquidity: At June 30, cash and cash equivalents were $20.838B, short-term investments $230M, and restricted cash $470M. Management reported $21.1B of unrestricted cash, cash equivalents and short-term investments, plus $1.75B available under its revolving facility.
- Debt and obligations: Long-term debt carrying amount was $34.184B, including current maturities; total debt, lease and sale-leaseback obligations were approximately $41.8B, with $2.6B due within 12 months. UAL and United reported compliance with debt covenants. First-half interest expense was $779M, versus $367M a year earlier.
- Balance sheet: Total assets were $71.049B and stockholders’ equity $4.904B, compared with $59.548B and $5.960B, respectively, at year-end 2020. Advance ticket sales were $6.960B, including $2.6B of electronic travel certificates and future flight credits.
Changes, unusual items and management outlook
- Q2 revenue increased 270.9% from the pandemic-depressed comparison quarter as travel demand improved. Q2 scheduled capacity remained about 46% below Q2 2019; passenger load factor was 72.0%, versus 33.1% in Q2 2020. Six-month revenue was still 8.1% below 2020.
- Reported results benefited from $2.889B of CARES Act/Payroll Support Program grant credits in first-half operating special charges, including $1.079B in Q2. The company deferred recognition of $1.1B of PSP3 funding at June 30 and expected to recognize the remainder in Q3 as eligible payroll costs were incurred.
- United received about $5.8B under PSP2 and PSP3, comprising grants and approximately $1.7B of unsecured notes. It also raised $11.116B of net debt proceeds and $532M from equity issuance in the first half, while repaying $4.072B of debt, leases and other financing liabilities.
- Management saw demand rising from March 2021 and expected Q3 scheduled capacity to be about 26% below Q3 2019, subject to booking trends and travel restrictions. It said existing liquidity was expected to meet 2021 liquidity needs, but the company must return to profitability to service debt and sustain long-term liquidity.
- United announced United Next aircraft orders for 200 Boeing 737 MAX and 70 Airbus A321neo aircraft, with deliveries expected to begin in 2023. Management projected nearly 30% more seats per domestic departure by 2026, an 11% improvement in overall fuel efficiency and 17–20% lower carbon emissions per seat than the older aircraft to be replaced. These are forward-looking expectations.
- Aircraft, improvements and other capital commitments totaled $35.3B; estimated regional capacity purchase payments were another $12.1B through the end of the applicable agreements. The company also reported approximately 4,500 employees elected voluntary separation programs, with most expected to leave after their leave periods.
Risks and contingencies
Management emphasized uncertainty from COVID-19, including new variants, vaccine effectiveness and government travel restrictions. Other material risks include volatile fuel prices, price competition and demand recovery, high leverage and variable-rate debt, labor and regional-carrier constraints, aircraft delivery and certification risks, operational disruptions, and regulatory, environmental and climate-related costs. The company had temporarily removed 52 Pratt & Whitney-powered Boeing 777 aircraft from its schedule after an engine incident; it reported no impairment after assessing expected future cash flows. Debt financing is secured by significant assets, including route authorities, airport slots and terminal rights. Other disclosed exposures include aircraft commitments, guarantees and credit-card processing reserve requirements. UAL and United said disclosure controls were effective as of June 30, 2021.
Important facts for investors to verify
- How much of reported cash generation and operating performance depends on government support, and how grant recognition affects comparability between periods.
- Whether the demand recovery and planned Q3 capacity translate into improved yields, load factors and a path to operating profitability.
- Debt service, variable interest-rate exposure, collateral pledged, covenant headroom and refinancing needs against $41.8B of debt and lease-related obligations.
- The timing and financing of the $35.3B capital commitment and $12.1B of regional CPA payments, including whether United Next delivery assumptions remain achievable.
- How customer ticket credits, refunds and advance ticket sales convert to travel or revenue, and whether credit-card processors require additional reserves.