UAL posts biggest yearly loss in airline history

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By Kathy Fieweger

CHICAGO, Feb 1 (Reuters) - UAL Corp. (UAL), the No. 2 U.S. carrier and
parent of United Airlines, on Friday posted a record 2001 net loss of $2.1
billion, the worst ever in the airline industry, joining the parade of
carriers hurt by the Sept. 11 attacks and a drop-off in lucrative business
travel.

UAL's yearly loss, which amounted to $40.04 per share, surpassed the $957
million it lost in 1992, according to spokesman Joe Hopkins. The shortfall
also outpaced the net $1.7 billion 2001 loss at bigger rival AMR Corp. (AMR)
and the $2.0 billion net loss at smaller US Airways Group Inc. (U).

UAL's 2001 loss from operations was $3.7 billion.


Despite speculation in the industry that the 75-year-old airline will have
to file for bankruptcy protection unless it gets wage or work-rule
concessions, executives steadfastly refused to comment on the possibility.
They pointed to $2.6 billion cash on hand at year-end and an aircraft
financing deal completed this week.

"While our financial results this quarter reflect a decline in both business
and leisure travel, during the fourth quarter we saw signs that air travel
is slowly beginning to recover," said Chairman and Chief Executive Jack
Creighton in a statement.

He took over in October after the previous CEO, James Goodwin, was ousted
when machinists complained about his statement the airline would "perish"
unless losses stopped.

A spokesman said the carrier could apply for federal loan guarantees under
the $15 billion federal bailout package enacted after the Sept. 11 attacks
as part of an overall plan to turn the airline around.

UAL now has about 81,000 employees, laying off roughly a fifth of its
workforce since the deadly attacks on New York and Washington. It cut out 23
percent of its flight schedule to cope with the sudden downturn in demand
for tickets.

Despite the layoffs and losses, UAL said it is pressing ahead with a goal to
secure outside investors for its Avolar fractional business jet unit, which
some employees have criticized. Fractional programs sell shares of planes to
wealthy individuals and corporations.

CONTINENTAL SET PRIOR RECORD

According to John Weber, vice president at consulting firm BACK Aviation
Solutions, the record loss for any single airline before last year was a net
loss of $1.23 billion reported by Continental Airlines in 1990.

UAL reported a fourth-quarter net loss of $308 million, compared with a net
loss of $71 million a year ago. Before special items such as federal cash
aid that followed the attacks on the United States, the company lost $640
million in the quarter. Revenues tumbled by 40 percent.

The airline also forecast an unspecified "significant loss" in the first
quarter, despite some encouraging trends.

The top eight U.S. airlines have now posted a combined fourth-quarter net
loss of $3.2 billion, including a $64 million profit at trend-bucking
Southwest Airlines Co. (LUV).

UAL shares closed off more than 8 percent on the New York Stock Exchange,
shedding $1.27 to $13.43, less than half their pre-attack level.

In a conference call, United -- heavily reliant on corporate travel -- said
it has a high enough proportion of business travelers, but the fares they
are paying are too low.

President Rono Dutta said yields for business travel, a measure of fares
after accounting for corporate and other discounts, are down about 20
percent from a year ago.

Weak business travel has been a problem for airlines for some time now,
hurting them even before the suicide hijackings of four jetliners hurled the
industry into a historic crisis.

Dutta also said passengers on international flights are tending to book on
foreign flagship carriers rather than on United, two of whose jets were
hijacked and crashed on Sept. 11.

A WARNING ON SALARIES

UAL Chief Financial Officer Jake Brace said unresolved labor contracts with
mechanics and other ground workers, represented by the International
Association of Machinists, have been an impediment to turning the airline
around.

Going forward, he said, United is seeking to adjust workers' salaries, which
were "set at a different time."

"I think labor is very realistic," Brace said. "We all know additional
sacrifices need to be made."

Labor costs account for 38 percent of total expenses, among the highest in
the industry.

Brace said repeatedly that the airline is focused on a financial recovery
plan that includes reductions in labor costs. United has talked to each of
its unions and their financial advisers but has not yet asked for specific
reductions, he said. However, he said "several billion" dollars' worth of
concessions would be needed to make a recovery plan work.

UAL's net loss per share in the quarter was $5.68, compared with $1.40 per
share a year earlier. Still, before special items its per-share loss was
$11.74, narrower than Wall Street expectations.

The items included $261 million cash from the $15 billion federal airline
bailout package and a gain on the sale of investments in travel services and
residential real estate firm Cendant Corp. (CD).

Revenues in the quarter fell to $2.9 billion from $4.8 billion. Yearly
revenues fell 17 percent to $16.0 billion.

ABM AMRO analyst Ray Neidl said Brace's comments about requiring concessions
from labor were the first public statements on the subject to emerge from
United.

RESULT BEATS CONSENSUS

Michael Linenberg, an analyst at Merrill Lynch, said the results showed
United Airlines was climbing out of the abyss.

"While the loss was huge, the results were much better than our $16.00 loss
forecast and the consensus loss of $14.96," he said. "On balance, we are
encouraged by the results."

United will add 127 daily departures to its April schedule, mirroring a
restoration of some flights at other carriers like rival AMR Corp. (AMR),
parent of American Airlines and TWA.

United said its booked load factor, or percentage of seats filled, for
February is ahead of last year, but March is flat.

United is currently trying to work out agreements with some 15,000
IAM-represented mechanics and 30,000 other ground workers, some of whom have
voted to strike.

A specially appointed presidential board recently told the airline it should
offer mechanics raises of up to 37 percent, and UAL accepted the deal.

Mechanics will vote on the proposals on Feb. 12, and negotiations with other
unionized employees resume on Feb. 11.

UAL said its daily cash burn rate in the fourth quarter was about $10
million, and it ended the quarter with a cash balance of $2.6 billion.

The airline also said it completed a $775 million private debt financing,
with the money largely dedicated to refinancing lease debt on 21 Boeing (BA)
737 and 757 jets. The airline ended the year with 543 aircraft.

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