Mudge

Buy an oil refinery or other assets to leverage debt against in times like this. Diversify the business. I.e., amazon just isnt direct sales. They sell cloud space etc.

AxlF16

How about hotels and rental cars? Maybe even small jets?

BTW I wonder how Deltas refinery business is going now? The price of jet fuel seems pretty low.

Andy

Buy an oil refinery? Like Delta? Then put the refinery in an LLC (Monroe Energy LLC) so those refinery losses (and they're not small for Delta) can be kept off balance sheet? Then have management BS everyone and tell the public that it's a success?

Well, I guess that strategy would make United less of a takeover target.

Unfortunately, we now have Apollo Global Management (vultures) circling United. They bought $2B of secured debt. If United goes chap 11, this would give them significant leverage in the creditors committee. It's a takeover strategy that scumbag vultures use; Icahn's used it in the past as have other dirtbags.

The refinery is basically a hedge on the crack spread. And the crack spread has collapsed. Even in normal times, the refinery was a money loser. Now it's an albatross around Delta's neck.
In addition, Delta's Monroe Energy LLC has bought a ton of crude hedges so they're taking a second beating on those hedges.
All of this is off balance sheet so it would take a lot of digging to figure out the magnitude of losses for that refinery.

AxlF16

Thanks for that info Andy. I guess you didn’t want to take a swing at the hanging curveballs lol 😁😁. We should indeed be concerned about how the corporation uses its cash flow...but diversification from the core business is BAD.

tnkrdrvr

I would argue diversification is good. You simply need to diversify into areas that leverage preexisting company strengths. Why does United not have a dedicated freight service for moving the more valuable types of time sensitive cargo that can pay to move jets even when pax demand is low? Why didn’t corporate leadership look into business ventures where it’s IT architecture could serve other businesses’ needs? United was content to just be a pax hauling airline with no significant cash flow from other business lines. This meant it would always be vulnerable to anything driving down demand for air travel significantly. A diversified corporation draws income from several areas enabling it to weather downturns in any one business line.

AxlF16

Out of curiosity, what is your United date of hire? The lesson has been learned at United. Many times.

MaxQ

You have it right Blackhawk.
This applies to any airline...or any other company for that matter. Any assets can be used to finance a buyout, turning a healthy airline/company overnight into one with massive debt that is almost impossible to repay.(remember Northwest and Al Chechi and his band of robbers) But it’s ok because a lot of finance people and shareholders make a ton of money and it just makes a bunch of unionized workers more likely to either lose their jobs or take huge pay cuts. Win/Win for those with a certain worldview.
My personal view is it should not even be legal. I can’t think of any scenario where allowing this activity does anything but extract wealth from the nation and create misery for large numbers of people.
I am also enough of a realist to know that no serious restrictions will be put on what the extremely rich and powerful can do to extract wealth from pretty much any source in the country.
Hence to avoid such predations...kind of what you said. Rather than carry too much cash and unencumbered assets, distribute it to those who made it. The workers.

Ok...going to go check the temperature in hell now, see if it’s dropping.

Andy

AxlF16 was asking you how long you've been at United. Clearly, you were hired well after 9/11.
United used to have an extensive cargo operation, including dedicated cargo aircraft and an Anchorage cargo base. It was a pretty robust cargo operation. Then, sometime prior to the then-CFO, Duda, dismantled United's cargo operation. He stated, 'there's no money in cargo'.
After 9/11, he left United and went to an Indian airline, which he was able to put out of business. A real 'talented' senior manager.

But we still have a cargo operation; it's just much smaller than it used to be. United earned $1.2B in cargo revenue in 2019. (page 43 of the 10K).

JoePatroni

Northwest had a huge cargo operation too. Anyone who says, “There’s no money in cargo” needs to take a look at the freight ramps in HKG and PVG.

AxlF16

United also wasted a lot of money on rental cars and hotels. Just before 9/11 they sank a ton of $$$ into the corporate jet business (remember Avolar?). Every management team I've seen has struggled to run THIS business in a sustainably profitable way, so there's little surprise their tangential businesses always end poorly - for the employees.

This business is a cash cow, and there is a lot of temptation to divert that cash flow. Of all the dumb crap we've seen them do with the cash, stock buybacks is reasonable behavior...