Tue, Jul 15, 2008
Will Post Loss To Deliberately Devalue Company
There's a lack of "goodwill" lately at United Airlines... and
we're not talking about the contentious relationship between
management and employees. Parent company UAL announced Monday it
might record a $2.7 billion hit for the second quarter of 2008,
slashing any "goodwill" it's had for the past two years.
In this context, "goodwill" represents the excess value United
carried above the estimated fair market value of its assets, when
it left bankruptcy protection in February 2006.
Bloomberg reports United will dump some $2.3 billion of that
"goodwill" value, to deliberately devalue the airline in the face
of soaring fuel prices. The airline will also post $82 million in
losses related to cuts in payroll, while another $246 million is
tied to retiring United's 737 fleet. Some $60 million will be lost
due to unspecified projects that have either been terminated, or
indefinitely deferred.
"Given current market conditions with the price of fuel and the
significant drop in the company's market capitalization, the
intrinsic value that existed at bankruptcy is significantly
reduced," said United spokeswoman Jean Medina.
That's an understatement. With the devaluation, United's value
is only about 24% of the book value of its assets... meaning United
as an airline is worth much, much less than the sum of its
parts.
United isn't the first carrier to cut its "goodwill." Northwest
slashed its $2.2 billion goodwill value earlier this year,
following the steps of a similar writedown by merger partner Delta
Air Lines.
While almost all US airlines have seen their stock values drop
this year, prices for shares in United have plummeted 90 percent...
by far the sharpest dropoff.
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