UAL Corp.’s United Airlines, the second-largest U.S. carrier, is asking lenders to let it repay $350 million in debt and implement as much as $500 million in “shareholder initiatives” such as stock buybacks.
The plan will be presented to lenders today, with a decision likely next week, Chicago-based United said in a statement. “The type and timing of any initiative, which could mean things like dividends and buybacks, would be up to the board,” spokeswoman Jean Medina said in an e-mail.
United’s request comes amid investor demands that U.S. carriers take action to raise their stock value, as the Bloomberg U.S.
Airlines Index has fallen 25 percent this year. Pardus Capital Management LP, an owner of UAL and Delta Air Lines Inc.
shares, earlier this month urged Delta to seek a merger with UAL.
“United management has been clear over the last several months that it will pursue measures to advance shareholder interests, even at the potential expense of some incremental improvement in credit quality,” Douglas Runte, a strategist at RBS Greenwich Capital Markets in Greenwich, Connecticut, said in an interview. “This is a step in that direction, with possibly more steps to come.” Jake Brace, UAL’s chief financial officer, said on Nov. 7 that the company would use any cash in excess of $3 billion to improve its balance sheet and benefit shareholders, possibly through measures such as a stock repurchase.
The airline is also considering selling assets, including its frequent-flier program, and has said it wants to pursue consolidation.
Cash, Debt UAL had $5 billion in cash and short-term investments as of Sept. 30, including $788 million in restricted cash, according to its third-quarter earnings release. Long-term debt as of that date fell to $7.03 billion from $7.45 billion on Dec. 31, the company said in a quarterly U.S. regulatory filing.
United said today that if changes to its credit agreement are approved, additional shareholder initiatives would be permitted in exchange for further early debt repayments.
The airline said it cut total net debt by $2.7 billion in the 20 months since it left bankruptcy and generated more than $2 billion in operating cash flow in this year’s first nine months.
UAL rose $1.01, or 2.5 percent, to $40.79 at 11:57 a.m. New York time in Nasdaq Stock Market composite trading. The shares have declined 7.3 percent this year.
Goldman, Sachs & Co. today raised its rating on UAL to “buy” from “neutral” and added the company to its America’s Buy list. United will benefit from U.S. capacity restraints and growth in international markets where it doesn’t face low-fare competition, analyst Robert Barry said in a report.
