United stirred together an extended credit-card agreement with Chase Bank USA, new debt on its planes, and other financial maneuvers that it said would
add $1.7 billion to its cash balance, including $200 million it expects to get over the next two years. United ended the quarter on June 30 with $2.9 billion in cash.
The carrier extended its credit card agreements with Chase Bank, a unit of JPMorgan Chase & Co. As part of that deal, Chase will accelerate a payment of $600 million for buying the frequent flier miles it uses to reward credit card customers.
United also freed up about $350 million in previously restricted cash by signing a new credit card processing agreement with Paymentech LLC, which Chase partially owns. Credit card processors often hang onto some of the money for airplane tickets that have been sold but not used, in case they get returned. A sharp increase in the holdback for Frontier Airlines helped send that small carrier into Chapter 11 bankruptcy protection in April.
United's holdback dropped from $385 million to $25 million, Chief Financial Officer Jake Brace said on a conference call. He said the agreement includes triggers that could raise the holdback to higher levels again.
He did not offer details about how United won the smaller holdback, except to say that it was not by selling the frequent flier miles for less.
He said United in fact won a higher price for its frequent flier miles.
United expects to raise $330 million during the third quarter by borrowing against aircraft and releasing restricted cash.
The company needs the money. United's fuel bill will rise more than $3.5 billion this year, said Chairman, President and Chief Executive Glenn Tilton on a conference call.
"We're doing all we can to control our costs and to improve our revenue to offset fuel," he said. New fees for checking luggage as well as other baggage fees are expected to bring in $275 million per year in new money for United.
I have been saying it for a while. UAL is in a good position for one primary reason, their most profitable frequent flier program. UAL has a lot going for them (
http://www.airlinepilotforums.com/ma...tml#post389235), but by far the most important is their frequent flier program valued at $12 - $14 Billion dollars, which generates about $1 Billion dollars a year in revenue for banks. As expected, these banks will not allow United to go under because of this asset they possess. So UAL got a cash infusion, was able to free up some previously restricted cash, as well as some added long term cash flow for selling their miles at a higher rate.
I think it is very interesting that at a time that no one can get any credit, United is given a massive cash infusion, as well as almost eliminating the credit card holdback (the thing that sent Frontier into bankruptcy). Someone certainly has some faith in United. Or the banks are able to see the value that United brings to the table. If only airline managers could think like bank managers! But that is why banks have money, and airlines do not. Banks see value, and they go after it. Now if only CAL management could see the value in merging with UAL...