Charges Batter UAL's Bottom Line

The airline posts a second-quarter loss of $1.43 billion.
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Losses ballooned at

United Airlines'

parent

UAL

(UALAQ)

during the second quarter as the bankrupt carrier absorbed a slew of restructuring charges.

But UAL, which has been operating under Chapter 11 protection for two-and-a-half years, saw unit revenue improve on reduced capacity and higher fares. The company also said operating earnings improved.

The Chicago-based carrier, which is the nation's No. 2 airline, Thursday reported a second-quarter loss of $1.43 billion, or $12.33 a share, vs. a year-ago loss of $247 million, or $2.25 a share.

Of the latest quarter's loss, $1.39 billion came from reorganization items. Among them were a $602 million noncash loss related to UAL's handing over of pension plans to the federal pension insurer, $212 million in noncash charges for the rejection of airplanes and $509 million in noncash contract-rejection charges. UAL expects to resolve these charges in the bankruptcy process and eventually reduce them.

Excluding special costs and reorganization items, UAL lost $26 million. Operating earnings rose to $47 million from $7 million a year ago.

The company has taken drastic restructuring measures. During its time in bankruptcy, UAL has wrangled $3.2 billion in annual labor savings from its workers, battled with aircraft lessors and gotten the federal Pension Benefit Guaranty Corp. -- which itself is running a huge deficit -- to agree to take over its traditional pension obligations.

During the second quarter, UAL's mainline operations, which exclude smaller regional flights, saw unit revenue increase 5% from a year before, boosted by a 3% increase in yield, or average fare.

Although passenger traffic decreased 1% across all of UAL's flights, the airline reduced capacity even more -- by 3% -- allowing it to better fill its planes. The load factor, or average percentage of seats filled, was 83%.

High fuel costs continued to be a problem for UAL, as they have been for the broader industry. UAL paid $262 million more for jet fuel in the latest quarter than it did a year before, as its average price per gallon rose 45% to $1.71.

Fuel drove UAL's mainline operating unit costs up 6% year over year.

The company finished the quarter with an unrestricted cash balance of $1.7 billion, and a restricted balance of $968 million, making for a cash total of $2.6 billion. The unrestricted hoard increased by $295 million. Since the end of the quarter, UAL has added $310 million more to that, having taken advantage of a change in its debtor-in-position credit facility.

Looking ahead, UAL expects to reduce third-quarter capacity by about 5% from last year. It expects fuel costs to continue to climb, to an average of $1.83 a gallon in the third quarter.

As UAL reported its results, its relations with its flight attendants' union remained fractious.

The Association of Flight Attendants said it was picketing and handing out leaflets at 20 locations around the globe Thursday to protest the company's handling of its pension plan to the PBGC. The union says the move amounts to a unilateral abrogation of its contract, giving flight attendants the right to strike. UAL disputes that claim, saying a strike would be illegal under the Railway Labor Act, which governs airline labor relations.

The AFA, which is also asking for the replacement of UAL's management team, said it was not engaging in actual work stoppages but continued to assert the right to conduct them at any time.