UAL Stock Down Over 60% YTD, United Airlines Seeks Government Bailout Option to Sustain

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by Bhushan Akolkar · 3 min read
UAL Stock Down Over 60% YTD, United Airlines Seeks Government Bailout Option to Sustain
Photo: United / Instagram

United Airlines has reached out to the U.S. government requesting $4.5 billion in loans to keep their operations floating. The airlines operator has also offered the government a higher stake in the company with a fresh stock offering.

With global travel and tourism coming to a major halt, the airline industry is going through its toughest period in history. Needless to say, the reason is pretty obvious with the ongoing COVID-19 pandemic. On Monday, the airline carrier United Airlines Holdings Inc (NASDAQ: UAL) declared its Q1 2020 result, reporting its biggest loss of $2.1 billion since the 2008 financial crisis. The United Airlines (UAL) stock crashed 3% further on Monday after its result. So far, UAL stock has corrected over 60% year-to-date. On Tuesday, UAL stock was up 0.32%. At press time, in the pre-market, United Airlines (UAL) stock is $27.38 (-1.79%) with a market cap of $6.89 billion.

In its filing, United Airlines has applied for government loans under the stimulus bills released last month. Reportedly, United Airlines has requested a loan of $4.5 billion from the U.S. Treasury Department for a period of five years. Last week, UAL has expected that the government will offer them a stimulus of $5 billion. Of this, $3.5 billion will come as a direct cash grant to keep the operations running and prevent unemployment. The remaining shall likely come in the form of a 10-year low-interest loan.

United Airlines Announces Fresh UAL Stock Offering

In its latest measure to raise money, United Airlines said that it is planning a fresh stock offering. The airlines’ operator said that it plans to release around 39.25 million shares worth around $1 billion. Besides, it said it would give the Treasury Department around 4.6 million UAL stock at a price of $31.50 per share.

The warrants will come with an expiry timeline of five years from the date of issuing them. Furthermore, if the airline manages to get $4.5 billion in government grants, it can increase the government ownership of the stock.

In the first quarter, United Airlines’ revenue has tanked by 17% to $8 billion. This is below the estimated revenue of $8.2 billion as UAL lost $100 million in daily sales in the last two weeks of March. For the month of April, the carrier has slashed 80% of its flight capacity. Besides, it expects that the figure will increase to 90% by the month of May, and the same for June if the pandemic continues.

United’s CEO Oscar Munoz and its president Scott Kirby said: “Travel demand is essentially zero and shows no sign of improving in the near-term”. With all the uncertainty around local as well as global travel, the future of the airlines’ industry looks very bleak.

Other local competitors like Delta Air Lines, American Airlines, Spirit Airlines are just working ways out to keep their neck above the water. Earlier this week, British airline operator Virgin Atlantic has also asked for a government loan from the U.K. government to keep their operations floating during these tough times and prevent further job losses.

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Bhushan Akolkar
Author: Bhushan Akolkar

Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.

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