United Airlines posts major 3Q losses, but touts liquidity coffers

United Airlines’ liquidity now positions the company to withstand COVID-19 pandemic pressures through 2021, even as airline travel remains at depressed levels, according to three sources following the company. Although the airline posted an expected decline in revenue for 3Q20 yesterday (14 October), the company amassed more than USD 19bn in liquidity to navigate the downturn.  

Company officials added on today’s earnings call that a recovery will likely materialize in late 2021, adding that demand won’t come close to normal until there’s a widely available vaccine. But until then, the company should have enough cash to cope with the downturn, but the health of its liquidity coffers will be somewhat dependent on government assistance, the sources said.  

At 3Q-end, the borrower listed USD 19.4bn of debt through USD 13.15bn of cash and USD 6.25bn available in various facilities. 

But management stated on today’s call that liquidity is expected to decline to USD 16bn by the end of 2020, assuming the company doesn’t receive additional CARES Act funding. But if the company can upsize the loan, liquidity would return to roughly USD 19bn.  

During the quarter, United entered into a USD 5.17bn CARES Act loan with the US Treasury, secured by certain slots, gates and routes. The company expects to increase the commitments for the loan by roughly USD 2.3bn.  

The company expects to burn USD 24m-USD 35m in 4Q20, including debt and severance payments. Capacity is expected to be down 55% in 4Q and remain flat through 1Q21, according to United officials.  

In 3Q20, the company’s average daily cash burn totaled USD 25m per day, including debt and severance payments, in line with expectations.  

CEO Scott Kirby said United will become cash-flow positive some time in 2021. On Tuesday (13 October), Delta Air Lines said it now expects to become cash-flow positive in early 2021, later than previous projections of late 2020.  

For the quarter, United posted USD 2.49bn in total operating revenue, down 78% year-over-year. For the same period, capacity was down 70% year-over-year. 

Chicago-based United also began furloughing around 13,000 workers in early October after the USD 25bn federal payroll support package for airlines that prevented job cuts expired. 

Since the beginning of the pandemic, the company has raised USD 22bn through debt offerings, stock issuances and a CARES Act Payroll Support Program grant and loan.  

If United’s earnings return to normalized levels, the company should be able to withstand the additional debt load that has been incurred to offset its cash burn and dwindling liquidity, sources added.  

Of the CARES Act loan, the company drew USD 520m in 3Q.  As such, investors are projecting an additional USD 500m draw in 4Q. Assuming a USD 1bn draw on the company’s new CARES Act loan, United’s debt load increases to roughly USD 30bn. If the company chooses to draw the entire expected USD 7.5bn, then the debt load will increase to USD 37bn.  

Using USD 7bn of normalized EBITDAR and a full CARES Act loan draw, the company would be about 5.3x levered in a post-pandemic environment, according to two of the sources.

Messages left with United were not returned. 

2020 Debtwire

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