United Airlines

This paper will present an analysis of UAL Corp. based on financial and operating ratios. United Airlines is actually a subsidiary of UAL Corporation, and its primary operating unit. Because airlines present certain unique questions, a number of non-typical financial and operating ratios will be presented and analyzed.

UAL is currently operating as a debtor in possession under Chapter 11 of the bankruptcy laws. It has effectively no equity so a number of traditional ratios such as debt equity are meaningless. There are no earnings per share and have been none for several years. It is highly likely that following the possible emergence of UAL from bankruptcy proceedings the existing common shares, and probably the preferred shares, will effectively cease to exist. Because of the above, some of the analysis presented here will be unconventional.

The balance sheet of the company for the fiscal years 2004 and 2003 are presented on the next page.

The liquidity of the company is very weak. The current ratio (current assets/current liabilities) at year-end 2004 was only 0.61, and at year end 2003 was 0.66. The quick ratio, cash and receivables divided by current liabilities was 0.34 in 2004 down from 0.42 the prior year. There are some distorting elements involved. There is restricted cash on the asset side and advanced ticket sales on the liability side that are not common current assets or liab

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. Another measure of the company's management effort to control cost while the ratio demonstrate maximizing revenue earned for each dollar of investment in equipment and facilities. UAL is producing more revenue with a slightly lower investment in revenue generating assets. Again, this is evidence that the company is moving in the right direction. To better understand an airline, it is necessary to look at some measures that are unique to the industry. A group of these special measures (ratios?) is presented below. These figures give a more graphic understanding of an airline operation than conventional financial ratios. These are the key figures that management agonizes over. The function of an airline is to move as much payload over its route structure as it can. It costs virtually no more to fly an airplane loaded to capacity from point A to point than it costs to fly the same aircraft between the same points half loaded. Obviously, a fully loaded airplane generates more revenue than the partially loaded one. The load factor is simply the percent of the capacity of the aircraft that is being utilized on average. It is computed by dividing available seat miles by revenue passenger miles. A seat mile is a s

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