United Airlines To Focus On Preserving Cash Vs Acquiring New Aircraft

Advertisement:

United Airlines will prioritize building its balance sheet rather than turning over its planes as it looks to overcome the financial stress that the COVID-19 pandemic has brought on. In a virtual conference call today, newly-appointed United CEO Scott Kirby spoke about his company’s plans after the outbreak clears.

United planes SFO
United is looking to save money on the back of its period of passenger downturn. Photo: Getty Images

A new era

The executive shared that everything is going to be different in the post-pandemic world. Along with the Chicago-based airline’s overhauls in safety, cleanliness, and hygiene, operations throughout the whole company won’t be the same.

Subsequently, United’s focus will shift. When it gets through the crisis, the number one priority will no longer be growth. Instead, the emphasis will be on paying its debt. Kirby admitted that it is going to be a long time before his firm returns to multiple billions of dollars a year in capital expenditure.

However, he is confident that it will soon have enough cash flow to break even. Nonetheless, this money is going to be devoted to improving the balance sheet first and foremost before the company starts spending capital.

United airlines aircraft parked
Most of United’s aircraft remain grounded amid the global travel restrictions. Photo: Getty Images

Culture shift

Along with these developments, aircraft buying habits will also change. Previously, United could retire jets at younger ages and take on new ones with ease. Now that it has to take much more care of its finances, it doesn’t have the luxury of being as flexible with retirements.

“The world has changed. In February, we could buy an airplane as replacement aircraft and finance it at 3.5 percent and retire a 15-year-old aircraft and part it out to make the economics of that work. That was fine in that world, but in tomorrow’s world, on the back of this crisis, we were taking on more debt, and before we pay down all that debt, the cost of capital to buy a new airplane is going to be different,” Kirby said in the conference call, attended by Simple Flying.

Advertisement:

“We were literally parting through airplanes as young as 15 years. We will part it out at 20 or 25, that’s going to now be the correct financial decision. The less risky decision is to keep the older airplanes, as opposed to investing tens of millions of capital on a new airplane.

United Airlines
United’s fleet will mostly look the same over the next few years. Photo: Getty Images

Damage limitation

Altogether, United hasn’t played down the potential impact of the global health crisis since the start. Its cautious approach may help it be in the best shape it can be by the time the worst of the consequences are over.

In the call, Kirby highlighted that United will not file for bankruptcy. He said it would be the absolute last thing it would do, and it is not even remotely in its plans. Altogether, the carrier’s critical approach should prove to be worthwhile in the long-term.

Advertisement:

The company was expecting to burn up to $45 million per day for the second quarter of this year and $20 million by the fourth quarter. However, Kirby highlights that thanks to the extraordinary work of United’s staff to reduce costs in every aspect of its business, including the tens of thousands of employees who stepped forward to take unpaid leave, the operator’s confidence is increasing.

What are your thoughts on United’s plans for its fleet? How do you see the airline adjusting following the pandemic? Let us know what you think in the comment section.

Advertisement: