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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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July 23, 2007 12:01 AM ET
Bloomberg
EXPECT TURBULENCE United Airlines CEO Glenn Tilton is facing opposition from his company’s employees over a possible stock buyback.
“United’s employees will regard this as another hard slap in the face,” said Mark Bathurst, chairman of United’s pilots union, in a July 2 letter to CEO Glenn Tilton. “You aren’t interested in investing in the future of the airline.” Naturally, Mr. Bathurst would rather see United funnel cash to workers who sacrificed pay and benefits to help the airline survive a three-year bankruptcy reorganization. But he’s not the only one wondering if the money would be better spent on planes or debt repayment, or socked away as a cushion against the next inevitable travel slump. “I’d be more interested in them taking down debt or setting up a reserve to buy planes down the road,” said Ray Neidl, an airline analyst with New York investment firm Calyon Securities. The buyback debate underscores how United isn’t generating sufficient cash to bolster its employees’ pocketbooks, pay down debt, buy new planes and secure its future in a brutally competitive airline market when a merger partner has yet to materialize. George Godlin, senior analyst for Moody’s Investors Service in New York, said the credit rating agency “would believe the timing of a potential share repurchase is not the best. United is not earning excess cash flow.” But after taking about $1.8 billion of debt off the books this year, and with no big debt maturities to worry about, United executives are raising expectations for a share buyback or dividend. Returning cash to shareholders would prop up stock in Chicago-based parent UAL Corp., down 2% this year. “We have discussions on it very frequently,” chief financial officer Jake Brace said during a conference call with analysts in April. “Very frequently,” echoed Mr. Tilton. Neither offered a dollar figure, but Mr. Brace indicated the company would evaluate the possibility of a buyback late in the third quarter or early in the fourth. At an investor conference last month, Mr. Brace emphasized that United’s top priority is reducing debt, but added, “We realize the importance of doing something for shareholders.” That’s what New York-based Bear Stearns airline analyst Frank Boroch likes to hear. “They could pay more debt or return cash to shareholders,” he said. “The reality is you need to do both.” Mr. Boroch figures United, which is expected to report $4.2 billion in unrestricted cash as of June 30, will annually generate $300 million to $500 million more cash over the next two years than it needs for debt payments and capital expenditures. That assumes United, unlike its competitors, doesn’t order any new planes. A company spokeswoman said in a statement that that’s not a pressing need: “We have one of the industry’s youngest fleets, and the likely availability of next-generation narrow-body aircraft fits well with our timing for replacement planes, giving us a competitive advantage.” And what happens when the industry takes its next cyclical nosedive? Mr. Boroch said United would need only about $1.5 billion in cash to weather the storm. Morningstar analyst Brian Nelson isn’t so sure. “They’re going to need this cash when we enter a downturn,” Mr. Nelson said. “I think it’s way too early to determine whether United has a sustainable operation.” —Crain’s Chicago Business
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