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United Airlines Gets No Respect

Stocks in this article: UAUA

United's pilots view the order as "a ruse," says Jay Heppner, spokesman for the United chapter of the Air Line Pilots Association. He says the intent is to raise capital and provide leverage in contract talks.

"This is akin to putting something on eBay with a minimum price, and then nobody bids your minimum price," Heppner says. Additionally, linking aircraft orders to concessions in contract talks is a common technique in the airline industry, he says. United has begun talks with its pilots regarding a contract that becomes amendable at the start of 2010.

In a letter to employees to discussing the RFP, Tilton said United wants to replace its widebody fleet and potentially its 757 fleet. He specified these conditions: "In addition to earning a return on investment , any aircraft order must be financed in a way that strengthens our balance sheet over the long term and does not impact our cash position," Tilton wrote.

Clearly, United enters the aircraft market at an advantageous time. Orders at Airbus and Boeing have slowed precipitously during the past year.

Aviation consultant Robert Mann says the potential order is particularly important because it sends a message to employees that United is not planning to shrink indefinitely, but he said the failure to fully explain the financing diminishes the gesture's value.

"I would have thought that would have been part and parcel of the announcement " he says. "The question is do they have the internal cash flows to support a good chunk of this. After all, the credit markets are terrible, the revenue environment is terrible, and United hasn't produced free cash flows at a rate to cover existing expenses , let alone to invest in new airplanes.

I'm sure they can do it," Mann says. "So I don't think it's a matter of not having a business case, but rather of not showing the business case."

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