UAL CorporationUAUA

Morningstar Rating

Stock Research and Analysis

by Basili Alukos, CPA

After shrinking its fleet size and cost structure substantially, we think United is now a ripe acquisition candidate.

Since introducing arguably the world's first modern civil airliner in 1933, United Airlines has grown into the third-largest U.S. Read more

Bulls Say

United has more capacity (based on available seat miles) to China than any other U.S. carrier. Since international flights boast higher fares, this Chinese presence should provide substantial growth opportunities for United.

United used bankruptcy protection to terminate its pilot pension plan, helping remove roughly $14 billion in liabilities from the firm's balance sheet. This move should reduce future contributions and improve its liquidity position significantly.

Due to massive restructuring charges, United has accumulated nearly $2.6 billion in net operating losses. We expect it will pay minimal cash taxes for the near future, which should strengthen its liquidity position.

We estimate checked-baggage fees could generate nearly $600 million in additional high-margin revenue for United. Read more

Bears Say

With a debt/capital ratio of 0.80, United relies extensively on debt to fund its operations. Due to the current market tightness, this reliance will most likely increase future borrowing costs and possibly limit United's future growth plans.

Price competition from low-cost carriers and legacy peers will continue to intensify in the pursuit of the marginal passenger, which poses a significant challenge to United's revenue premium strategy.

More than 80% of United's workforce operates under union contracts that are amendable beginning in 2010, which could put downward pressure on operating margins. Read more

Strategy

United offers a unique set of products and services, including additional three to five inches of legroom and lie-flat beds, in the hopes of earning a revenue premium over competitors. Although all customers Read more

Management

Glenn Tilton joined United as CEO, chairman, and president in September 2002, shortly before the firm filed for bankruptcy in December. A career oilman, Tilton started his career with Texaco, working his way through the ranks and becoming CEO in 1991. Read more

Profile

Chicago-based UAL owns and operates United Airlines, the United States' second-largest airline based on available seat miles. United operates nearly 3,000 daily flights Read more

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