United Airlines Seeks To Raise $10.75bn As Revenue Improves

United has provided some preliminary guidance on its first-quarter 2021 results. The airline’s revenue was down 66% compared to the same quarter in 2019, which puts it toward the favorable end of United’s previous guidance.

Also, while core cash burn improved significantly from the fourth quarter of 2020 to the first quarter of 2021, United announced it intends to commence a private offering to raise $5.5 billion and enter into additional loan facilities to raise a total of $10.75 billion.

United’s first-quarter revenue was down 66% compared to the same quarter in 2019, which was at the lower end of United’s guidance. (Photo: Vincenzo Pace | Simple Flying)

United’s first-quarter revenue guidance

The first quarter of 2021 started off slow but picked up by the time March rolled around, leading to an improvement in revenue for the airline. The airline expects its total revenues to be about $3.2 billion for the quarter. This was a decrease of 66% versus the same quarter in 2019. The improvement was not unique to United, as other carriers, including American and Alaska, also indicated improvements toward the end of the first quarter.

United had previously indicated it expected revenue to be down anywhere from 65 to 70% versus the first quarter of 2019. While it seemed that revenue might be down at the higher end of that spectrum at the start of the year, the airline saw a forward acceleration in customer demand in new bookings in March 2021.

As such, March turned out to be cash positive for the airline – the first month in a year – and overall first-quarter cash burn was remarkably low. The average daily core cash flow for the first quarter is expected to be approximately negative $9 million per day. This is an improvement of about $10 million per day compared to the fourth quarter of 2020.

United intends to commence a private offering

United also announced today that it intends to commence a private offering equivalent to, in the aggregate, $5.5 billion. The offering will be split into two series of notes. One set will be senior secured notes due in 2026, while the other is senior secured notes due in 2029.

United also intends to enter into a new $3.5 billion senior secured term loan facility due 2028. In addition, the airline also plans to enter into a new $1.75 billion senior secured revolving credit facility due 2025.

The $5.5 billion in the notes offering plus the $3.5 billion term loan facility and $1.75 billion revolving credit facility will give United $10.75 billion in fresh cash.

United plans on using the net proceeds to repay $1.4 billion in the aggregate principal amount under a term loan facility United entered into on March 29, 2017, the $1 billion aggregate principal amount under a revolving credit facility United entered into on the same day, and the $520 million aggregate principal amount outstanding under the CARES Act term loan facility. Other proceeds will go toward paying the expenses relating to the notes offering and United’s general corporate purposes.

United wants to raise $5.5 billion from a notes offering. (Photo: Vincenzo Pace | Simple Flying)

The situation at United Airlines

Turning cash-positive in March was a very good sign for the airline. As the summer approaches and bookings continue, the airline is hopeful it can continue seeing similar results and turning a profit again.

From a liquidity standpoint, United stated it had access to $21 billion in available liquidity as of March 31st. This included $1 billion under a revolving credit facility and $7 billion under the government loan program.

There is still a ways to go before United Airlines gets back to profitability. It will also need to wait for the return of long-haul business travel to start to see higher margins on its profits when those days do come.

United is betting on a recovery with plans to train new pilots in the long-term and hire new ones in the short term. The airline is bringing back its schedule and has exceeded its pre-pandemic schedule to Latin America. As the company looks forward, its CEO expects more travel in the coming years as customers have already made some of their big-ticket purchases that would inhibit their ability to pay for travel. To that extent, United even upped its order for Boeing 737 MAX jets.

The big question in the picture is when and if United will recover its lost change fee revenue. United’s CEO believes it will recover that revenue. Change fees brought the airline around $1 billion a year, but getting that much additional revenue is no small feat.

Ultimately, United’s team believes it is on the right track. This new guidance shows an improving situation, and United is even raising new cash to pay off other debt and shore up its liquidity. As the future remains uncertain, the airline will continue to monitor its cash and operations.

Cre: Simple Flying

Nguyen Xuan Nghia – COMM