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CHICAGO, July 25 (Reuters) - Shares of United Airlines parent UAL Corp.
(UAL) plunged on Thursday, continuing a sell-off started last week when UAL
said it may have difficulty refinancing loans due later this year if it
fails to obtain federal loan guarantees.
UAL shares fell as much as 25 percent and have lost more than half their
value in less than a week, as company talk about difficult access to capital
markets following the Sept. 11 attacks outweighed any boost it might have
gotten from a new marketing pact with US Airways (U), analysts said.
UAL shares fell as low as $3.49 Thursday, by far the lowest level since the
adoption of an employee stock ownership plan in 1994 that gave workers a
major stake in the No. 2 U.S. air carrier behind American Airlines parent
AMR Corp. (AMR). UAL declined to comment on the stock movement.
The shares were off 60 cents, or 12.75 percent, at $4.10 on Thursday
afternoon. They have lost more than 85 percent of their value since the
Sept. 11 attacks.
"It is still the fallout from their conference call when they said that if
they don't get the government loan guarantees they have greater liquidity
issues than previously believed," Goldman Sachs airline analyst Glenn Engel
said.
"And obviously the market is very risk averse now and anything that smacks
of risk is getting pummeled," Engel said.
Last week, Elk Grove Village, Illinois-based UAL reported a $341 million
second-quarter net loss and said the third quarter likely would be similar
because a slow industry recovery had stalled. The company lost a record $2.1
billion last year.
UAL said it was concerned about its ability to refinance $900 million of
loans due near the end of the year without government approval of its loan
guarantees application. The company has accessed private capital this year,
but said the bulk of those opportunities had been tapped.
PROBLEMS WITH LABOR GROUPS
UAL has asked the government to back 90 percent of a $2 billion loan under
airline aid legislation passed following the Sept. 11 attacks. UAL needs to
demonstrate commitment to cost cutting to receive the guarantees, but has
not been able to get all of its labor groups to go along so far.
"I can see where there are still questions about UAL, but it is still a less
rudderless company than it was a year ago," air industry analyst Michael
Boyd said. "UAL is in no danger of going out of business at this point."
UAL's lack of a permanent chief executive and inability to negotiate cost
cuts with mechanics and flight attendants has fostered a perception that UAL
does not have a long-term plan to address its problems, Boyd said.
Chief Executive Jack Creighton assumed control of UAL last October on a
temporary basis and has said he intends to step down when a successor is
found.
Shares of Arlington, Virginia-based US Airways rose Thursday following the
marketing pact, which came about a year after a proposed merger of the
airlines fell apart over antitrust concerns.
A US Airways loan guarantee application has conditional approval and the
marketing pact added to perception that the air carrier has a plan to turn
things around, Boyd said.
Jim Higgins, a Credit Suisse First Boston analyst, said the marketing
alliance increases the chances the government will approve loan guarantees
for United and US Airways, though both applications still have significant
hurdles.
While the revenue generated could be considerable, UAL and US Airways face
considerable financial challenges and losses continue to mount for both,
Merrill Lynch airline analyst Michael Linenberg said in a research note.
©2002 Reuters Limited.
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