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United Airlines Expects To Deliver Peer-Leading Pre-Tax Margin Growth During First-Quarter 2019

United Airlines Expects To Deliver Peer-Leading Pre-Tax Margin Growth During First-Quarter 2019

United Airlines (UAL) today announced that a combination of strong top-line revenue performance and effective cost management led to first-quarter pre-tax margin growth that is expected to lead its peers. The company remains confident that it will deliver on its long-term adjusted diluted earnings per share2 (EPS) targets of $10 to $12 in 2019 and $11 to $13 in 2020.

  • Reported first-quarter net income of $292 million, diluted EPS of $1.09, pre-tax earnings of $367 million and pre-tax margin of 3.8 percent, expanding pre-tax margin 1.8 points versus the first quarter of 2018.
  • Reported first-quarter adjusted net income of $309 million, adjusted diluted EPS of $1.15, adjusted pre-tax earnings of $389 million, adjusted pre-tax margin of 4.1 percent, expanding adjusted pre-tax margin 2.1 points versus the first quarter of 2018.1
  • Total passenger revenue increased 7.1 percent versus the first quarter of 2018.
  • First-quarter passenger revenue per available seat mile (PRASM) increased 1.1 percent year-over-year.
  • Consolidated first-quarter unit cost per available seat mile (CASM) decreased 2.1 percent year-over-year.
  • Consolidated first-quarter CASM, excluding special charges, third-party business expenses, fuel and profit sharing, decreased 1.8 percent year-over-year.
  • Repurchased $527 million of its common shares in the first-quarter of 2019, at an average purchase price of $83.68 per share.
  • For the second consecutive quarter the airline reported adjusted pre-tax margin expansion.

"We delivered another strong financial quarter in which we made important progress on our customer investments while making strategic decisions to manage our costs and producing pre-tax margin growth that we expect will lead our peers," said Oscar Munoz, chief executive officer of United Airlines. "That's why we are more confident than ever that we'll reach our long-term adjusted EPS targets we unveiled last year. I want to thank all 93,000 of our employees for their incredible work as we overcame some unique challenges and refocused our efforts in 2019 toward elevating the United experience for our customers."

For more information on UAL's second-quarter and full-year 2019 guidance, please visit ir.united.com for the company's investor update.

First-Quarter 2019 Highlights

Operations and Employees

  • Flew the most revenue passengers ever for a first quarter in company history.
  • Despite a weather-challenged first quarter, achieved second-highest mainline on-time departures rate performance versus the major U.S. airlines.
  • Launched Backstage 2019 which will bring all 25,000 flight attendants to Chicago for an event which will help us elevate the way customers feel about their United experience.
  • Earned 100 percent score on Human Rights Campaign Foundation's annual scorecard on LGBTQ workplace equality.
  • Broke ground on a state-of-the-art Technical Operations Center at Los Angeles International Airport that will enable the airline to provide exceptional service for all of its aircraft fleets.
  • Announced headquarters will remain at the iconic Willis Tower in the airline's hometown of Chicago, while making investments to completely transform the current workspace and experience.

Customer Experience

  • Introduced a re-imagined mobile app to customers around the world featuring a more dynamic experience that updates customers at each step of their travel journey while adding enhancements that make managing travel easier.
  • Announced free live DIRECTV on 211 Boeing 737 United aircraft equipped with seat back TV, providing more than 100 channels of live television.
  • Introduced the relaunch of the United MileagePlus X app, which offers United MileagePlus® members a unique opportunity to earn award miles for everyday purchases.
  • Opened the fifth of its award-winning United Polaris Lounges at Los Angeles International Airport.
  • Opened a brand-new 5,000-square-foot United Club at Fort Lauderdale-Hollywood International Airport - the first of four new United Club locations set to open in 2019.
  • Announced next step in airline's commitment to making customers more comfortable by adding more than 1,600 United Polaris® business class and United First seats to nearly 250 international and domestic aircraft.
  • Launched new state-of-the-art United Meetings product, available on the airline's business portal, United Jetstream, which makes managing travel and redeeming rewards for meetings and events quicker and more streamlined.
  • Became the first U.S. airline to offer non-binary gender options throughout all booking channels in addition to providing the option to select the title "Mx." during booking and in a MileagePlus customer profile, providing customers the ability to identify themselves corresponding with what is indicated on their passports or identification.

Network

  • Began new service from four hubs to 18 cities in 12 states and one province and launched new nonstop seasonal service between San Francisco and Amsterdam.
  • Announced 11 new domestic routes.
  • Filed an application with the U.S. Department of Transportation for a total of six daily nonstop flights to Tokyo Haneda Airport from six of the airline's hubs.

Fleet

  • Announced a brand new and revolutionary regional flying experience with the addition of the two-cabin, 50-seat Bombardier CRJ 550 aircraft, offering customers on key regional routes more legroom, storage and amenities than any other 50-seat regional aircraft operating today.
  • Became first carrier in the world to operate all three Dreamliner models as its first 787-10 began regular service in January from Los Angeles International Airport to Newark Liberty International Airport.
  • Took delivery of four Boeing 737 MAX 9 aircraft (prior to the March 13, 2019 Federal Aviation Administration order grounding U.S.-registered 737 MAX aircraft) and four Boeing 787-10 aircraft.

Community and Environment

  • Donated $1 million to Feeding America's Shutdown Response Fund to directly support the food banks providing food for families of federal workers.
  • Launched Her Art Here, a first-of-its-kind contest designed to find and uplift underrepresented women artists by providing a chance to paint a canvas like no other - a United Airlines aircraft.

Earnings Call

UAL will hold a conference call to discuss its first-quarter 2019 financial results and its financial and operational outlook for second-quarter and full-year 2019 on Wednesday, April 17, at 9:30 a.m. Central time /10:30 a.m. Eastern time. A live, listen-only webcast of the conference call will be available at ir.united.com. The webcast will be available for replay within 24 hours of the conference call and then archived on the website for three months.

Every customer. Every flight. Every day.

In 2019, United is focusing more than ever on its commitment to its customers, looking at every aspect of its business to ensure that the carrier keeps customers' best interests at the heart of its service. In addition to today's announcement, United recently announced that luxury skincare line Sunday Riley will make products exclusively for United customers to experience in amenity kits, released a re-imagined version of the most downloaded app in the airline industry and made DIRECTV free for every passenger on 211 aircraft, offering more than 100 channels on seat back monitors on more than 30,000 seats.

On January 1, 2019, United Continental Holdings, Inc. ("UAL") adopted Accounting Standards Update No. 2016-02, Leases ("Topic 842"). As such, certain previously reported 2018 figures are adjusted in this report on a basis consistent with Topic 842.

UNITED CONTINENTAL HOLDINGS, INC.

STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)

 
   

Three Months Ended
March 31,

 

%
Increase/ 
(Decrease)

 

(In millions, except per share data)

 

2019

 

2018

   

Operating revenue:

             

Passenger

 

$

8,725

   

$

8,149

   

7.1

   

Cargo

 

286

   

293

   

(2.4)

   

Other operating revenue

 

578

   

590

   

(2.0)

   

Total operating revenue

 

9,589

   

9,032

   

6.2

   
               

Operating expense:

             

Salaries and related costs

 

2,873

   

2,726

   

5.4

   

Aircraft fuel

 

2,023

   

1,965

   

3.0

   

Regional capacity purchase

 

688

   

630

   

9.2

   

Landing fees and other rent

 

588

   

579

   

1.6

   

Depreciation and amortization

 

547

   

524

   

4.4

   

Aircraft maintenance materials and outside repairs

 

408

   

440

   

(7.3)

   

Distribution expenses

 

360

   

342

   

5.3

   

Aircraft rent

 

81

   

127

   

(36.2)

   

Special charges (B)

 

18

   

40

   

NM

   

Other operating expenses

 

1,508

   

1,397

   

7.9

   

Total operating expense

 

9,094

   

8,770

   

3.7

   
               

Operating income

 

495

   

262

   

88.9

   
               

Operating margin

 

5.2

%

 

2.9

%

 

2.3

 

pts.

Adjusted operating margin (Non-GAAP) (A)

 

5.3

%

 

3.3

%

 

2.0

 

pts.

               

Nonoperating income (expense):

             

Interest expense

 

(188)

   

(162)

   

16.0

   

Interest capitalized

 

22

   

18

   

22.2

   

Interest income

 

29

   

17

   

70.6

   

Miscellaneous, net (B)

 

9

   

47

   

(80.9)

   

Total nonoperating expense

 

(128)

   

(80)

   

60.0

   
               

Income before income taxes

 

367

   

182

   

101.6

   
               

Pre-tax margin

 

3.8

%

 

2.0

%

 

1.8

 

pts.

Adjusted pre-tax margin (Non-GAAP) (A)

 

4.1

%

 

2.0

%

 

2.1

 

pts.

               

Income tax expense (D)

 

75

   

37

   

102.7

   

Net income

 

$

292

   

$

145

   

101.4

   
               

Diluted earnings per share

 

$

1.09

   

$

0.51

   

113.7

   

Diluted weighted average shares

 

268.3

   

284.9

   

(5.8)

   
               

NM Not meaningful

             

UNITED CONTINENTAL HOLDINGS, INC.

PASSENGER REVENUE INFORMATION AND STATISTICS

 

Passenger revenue information is as follows:

 
   

1Q 2019
Passenger
Revenue
(millions)

 

Passenger
Revenue
vs.
1Q 2018

 

PRASM
vs.
1Q 2018

 

Yield
vs.
1Q 2018

 

Available
Seat Miles
vs.
1Q 2018

 

1Q 2019 
Available Seat 
Miles (millions)

Domestic

 

$

5,367

   

8.0%

 

0.6%

 

0.9%

 

7.4%

 

36,726

 
                         

Atlantic

 

1,331

   

6.3%

 

(2.8%)

 

(4.8%)

 

9.4%

 

10,626

 

Pacific

 

1,121

   

4.9%

 

4.5%

 

2.2%

 

0.3%

 

10,923

 

Latin America

 

906

   

5.3%

 

2.6%

 

2.3%

 

2.6%

 

7,370

 

International

 

3,358

   

5.6%

 

1.4%

 

(0.1%)

 

4.1%

 

28,919

 
                         

Consolidated

 

$

8,725

   

7.1%

 

1.1%

 

0.5%

 

5.9%

 

65,645

 
                         

Select operating statistics are as follows:

 
   

Three Months Ended
March 31,

 

%
Increase/
(Decrease)

 
   

2019

 

2018

     

Passengers (thousands)

 

36,454

   

34,495

   

5.7

   

Revenue passenger miles (millions)

 

53,097

   

49,849

   

6.5

   

Available seat miles (millions)

 

65,645

   

61,977

   

5.9

   

Passenger load factor:

             

Consolidated

 

80.9

%

 

80.4

%

 

0.5

 

pts.

Domestic

 

82.6

%

 

82.8

%

 

(0.2)

 

pts.

International

 

78.7

%

 

77.5

%

 

1.2

 

pts.

Passenger revenue per available seat mile (cents)

 

13.29

   

13.15

   

1.1

   

Total revenue per available seat mile (cents)

 

14.61

   

14.57

   

0.3

   

Average yield per revenue passenger mile (cents)

 

16.43

   

16.35

   

0.5

   

Aircraft in fleet at end of period

 

1,348

   

1,295

   

4.1

   

Average stage length (miles)

 

1,448

   

1,443

   

0.3

   

Average full-time equivalent employees

 

88,730

   

85,561

   

3.7

   

Average aircraft fuel price per gallon

 

$

2.05

   

$

2.11

   

(2.8)

   

Fuel gallons consumed (millions)

 

985

   

932

   

5.7

   
 

Note: See Part II, Item 6, Selected Financial Data, of UAL's Annual Report on Form 10-K for the fiscal year ended December 31, 2018, for definitions of these statistics.

UNITED CONTINENTAL HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

(In millions)

March 31, 2019

 

December 31, 2018

ASSETS

     

Current assets:

     

Cash and cash equivalents

$

1,848

   

$

1,694

 

Short-term investments

2,219

   

2,256

 

Receivables, less allowance for doubtful accounts

1,789

   

1,426

 

Aircraft fuel, spare parts and supplies, less obsolescence allowance

972

   

985

 

Prepaid expenses and other

780

   

733

 

Total current assets

7,608

   

7,094

 
       

Total operating property and equipment, net

28,586

   

27,399

 

Operating lease right-of-use assets

5,065

   

5,262

 
       

Other assets:

     

Goodwill

4,523

   

4,523

 

Intangibles, less accumulated amortization

3,144

   

3,159

 

Restricted cash

103

   

105

 

Notes receivable, net

512

   

516

 

Investments in affiliates and other, net

1,098

   

966

 

Total other assets

9,380

   

9,269

 

Total assets

$

50,639

   

$

49,024

 
       

LIABILITIES AND STOCKHOLDERS' EQUITY

     

Current liabilities:

     

Advance ticket sales

$

6,006

   

$

4,381

 

Accounts payable

2,707

   

2,363

 

Frequent flyer deferred revenue

2,388

   

2,286

 

Accrued salaries and benefits

1,660

   

2,184

 

Current maturities of long-term debt

1,201

   

1,230

 

Current maturities of finance leases

133

   

123

 

Current maturities of operating leases

639

   

719

 

Other

601

   

553

 

Total current liabilities

15,335

   

13,839

 
       

Other long-term liabilities and deferred credits:

     

Long-term debt

12,734

   

12,215

 

Long-term obligations under finance leases

236

   

224

 

Long-term obligations under operating leases

5,145

   

5,276

 

Frequent flyer deferred revenue

2,750

   

2,719

 

Postretirement benefit liability

1,287

   

1,295

 

Pension liability

1,454

   

1,576

 

Deferred income taxes

898

   

828

 

Other

998

   

1,010

 

Total other long-term liabilities and deferred credits

25,502

   

25,143

 

Stockholders' equity

9,802

   

10,042

 

Total liabilities and stockholders' equity

$

50,639

   

$

49,024

 

UNITED CONTINENTAL HOLDINGS, INC.

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)

 

(In millions)

Three Months Ended
March 31,

 

2019

 

2018

Cash Flows from Operating Activities:

     

Net cash provided by operating activities

$

1,915

   

$

1,709

 
       

Cash Flows from Investing Activities:

     

Capital expenditures

(1,609)

   

(944)

 

Purchases of short-term and other investments

(724)

   

(596)

 

Proceeds from sale of short-term and other investments

768

   

840

 

Loans made to others

   

(10)

 

Investment in affiliates

(27)

   

 

Other, net

12

   

15

 

Net cash used in investing activities

(1,580)

   

(695)

 
       

Cash Flows from Financing Activities:

     

Proceeds from issuance of long-term debt

646

   

673

 

Payments of long-term debt

(250)

   

(189)

 

Repurchases of common stock

(513)

   

(529)

 

Principal payments under finance leases

(20)

   

(18)

 

Capitalized financing costs

(17)

   

(16)

 

Other, net

(29)

   

(16)

 

Net cash used in financing activities

(183)

   

(95)

 

Net increase in cash, cash equivalents and restricted cash

152

   

919

 

Cash, cash equivalents and restricted cash at beginning of the period

1,799

   

1,591

 

Cash, cash equivalents and restricted cash at end of the period

$

1,951

   

$

2,510

 
       

Investing and Financing Activities Not Affecting Cash:

     

Property and equipment acquired through the issuance of debt

$

92

   

$

60

 

Operating lease conversions to finance lease

36

   

 

Right-of-use assets acquired through operating leases

51

   

103

 

Property and equipment acquired through finance leases

8

   

 

UNITED CONTINENTAL HOLDINGS, INC.

RETURN ON INVESTED CAPITAL (ROIC)—Non-GAAP

 

ROIC is a non-GAAP financial measure that UAL believes provides useful supplemental information for management and investors by measuring the effectiveness of the company's operations' use of invested capital to generate profits.

(in millions)

Twelve Months Ended
March 31, 2019

Net Operating Profit After Tax ("NOPAT")

 

Pre-tax income

$

2,833

 

Adjustments:

 

Special charges and mark-to-market ("MTM") losses on financial instruments:

 

Impairment of assets

362

 

Termination of a maintenance service agreement

64

 

Severance and benefit costs

33

 

MTM losses on financial instruments

33

 

(Gains) losses on sale of assets and other special charges

6

 

Pre-tax income excluding special charges and MTM losses on financial instruments (Non-GAAP)

3,331

 

add: Interest expense (net of income tax benefit) (a)

693

 

add: Interest component of capitalized aircraft rent (net of income tax benefit) (a)

193

 

add: Net interest on pension (net of income tax benefit) (a)

(12)

 

less: Income taxes paid

(14)

 

NOPAT (Non-GAAP)

$

4,191

 
   
   

Average Invested Capital (five-quarter average)

 

Total assets

$

49,392

 

less: Non-interest bearing liabilities (b)

(16,966)

 

Average invested capital (Non-GAAP)

$

32,426

 
   

ROIC (Non-GAAP)

12.9

%

   

(a)

Income tax benefit measured based on the effective cash tax rate. The effective cash tax rate is calculated by dividing cash taxes paid by pre-tax income excluding special charges and MTM gains on financial instruments. For the twelve months ended March 31, 2019, the effective cash tax rate was 0.4%.

(b)

Non-interest bearing liabilities include advance ticket sales, frequent flyer deferred revenue, deferred income taxes and other non-interest bearing liabilities.

UNITED CONTINENTAL HOLDINGS, INC.

NON-GAAP FINANCIAL RECONCILIATION

 

(A) UAL evaluates its financial performance utilizing various accounting principles generally accepted in the United States of America (GAAP) and Non-GAAP financial measures, including adjusted operating income (loss), adjusted operating margin, adjusted pre-tax income (loss), adjusted pre-tax margin, adjusted net income (loss), adjusted diluted earnings (loss) per share and CASM, excluding special charges, third-party business expenses, fuel, and profit sharing, among others. UAL believes that adjusting for special charges is useful to investors because special charges are not indicative of UAL's ongoing performance. UAL believes that adjusting for MTM gains and losses on financial instruments is useful to investors because those unrealized gains or losses may not ultimately be realized on a cash basis. UAL believes that adjusting for interest expense related to finance leases of Embraer ERJ 145 aircraft is useful to investors because of the accelerated recognition of interest expense.

 

CASM is a common metric used in the airline industry to measure an airline's cost structure and efficiency. UAL reports CASM excluding special charges, third-party business expenses, fuel and profit sharing. UAL believes that adjusting for special charges is useful to investors because special charges are not indicative of UAL's ongoing performance. UAL also believes that excluding third-party business expenses, such as maintenance, ground handling and catering services for third parties and fuel sales, provides more meaningful disclosure because these expenses are not directly related to UAL's core business. UAL also believes that excluding fuel costs from certain measures is useful to investors because it provides an additional measure of management's performance excluding the effects of a significant cost item over which management has limited influence. UAL excludes profit sharing because this exclusion allows investors to better understand and analyze our operating cost performance and provides a more meaningful comparison of our core operating costs to the airline industry.

 

Reconciliations of reported non-GAAP financial measures to the most directly comparable GAAP financial measures are included below.

   

Three Months Ended

March 31,

 

%
Increase/
(Decrease)

 
   

2019

 

2018

   

CASM (cents)

             

Cost per available seat mile (CASM) (GAAP)

 

13.85

   

14.15

   

(2.1)

   

Special charges (B)

 

0.02

   

0.07

   

NM

   

Third-party business expenses

 

0.05

   

0.05

   

   

Fuel expense

 

3.08

   

3.17

   

(2.8)

   

Profit sharing, including taxes

 

0.05

   

0.02

   

150.0

   

CASM, excluding special charges, third-party business expenses, fuel, and profit sharing (Non-GAAP)

 

10.65

   

10.84

   

(1.8)

   
 

NM Not Meaningful

UNITED CONTINENTAL HOLDINGS, INC.

NON-GAAP FINANCIAL RECONCILIATION (Continued)

 
   

Three Months Ended
March 31,

 

$
Increase/
(Decrease)

 

%
Increase/
(Decrease)

 

(in millions)

 

2019

 

2018

   

Operating expenses (GAAP)

 

$

9,094

   

$

8,770

   

$

324

   

3.7

   

Special charges (B)

 

18

   

40

   

(22)

   

NM

   

Operating expenses, excluding special charges

 

9,076

   

8,730

   

346

   

4.0

   

Adjusted to exclude:

                 

Third-party business expenses

 

30

   

31

   

(1)

   

(3.2)

   

Fuel expense

 

2,023

   

1,965

   

58

   

3.0

   

Profit sharing, including taxes

 

33

   

17

   

16

   

94.1

   

Adjusted operating expenses (Non-GAAP)

 

$

6,990

   

$

6,717

   

$

273

   

4.1

   
                   

Operating income (GAAP)

 

$

495

   

$

262

   

$

233

   

88.9

   

Adjusted to exclude:

                 

Special charges (B)

 

18

   

40

   

(22)

   

NM

   

Adjusted operating income (Non-GAAP)

 

$

513

   

$

302

   

$

211

   

69.9

   
                   

Pre-tax income (GAAP)

 

$

367

   

$

182

   

$

185

   

101.6

   

Adjusted to exclude:

                 

Special charges (B)

 

18

   

40

   

(22)

   

NM

   

MTM gains on financial instruments (B)

 

(17)

   

(45)

   

28

   

NM

   

Interest expense on ERJ 145 finance leases (C)

 

21

   

   

21

   

NM

   

Adjusted pre-tax income (Non-GAAP)

 

$

389

   

$

177

   

$

212

   

119.8

   
                   

Net income (GAAP)

 

$

292

   

$

145

   

$

147

   

101.4

   

Adjusted to exclude:

                 

Special charges (B)

 

18

   

40

   

(22)

   

NM

   

MTM gains on financial instruments (B)

 

(17)

   

(45)

   

28

   

NM

   

Interest expense on ERJ 145 finance leases (C)

 

21

   

   

21

   

NM

   

Income tax expense (benefit) related to adjustments above

 

(5)

   

1

   

(6)

   

NM

   

Adjusted net income (Non-GAAP)

 

$

309

   

$

141

   

$

168

   

119.1

   
                   

Diluted earnings per share (GAAP)

 

$

1.09

   

$

0.51

   

$

0.58

   

113.7

   

Adjusted to exclude:

                 

Special charges (B)

 

0.07

   

0.14

   

(0.07)

   

NM

   

MTM gains on financial instruments (B)

 

(0.07)

   

(0.16)

   

0.09

   

NM

   

Interest expense on ERJ 145 finance leases (C)

 

0.08

   

   

0.08

   

NM

   

Income tax benefit related to adjustments

 

(0.02)

   

   

(0.02)

   

NM

   

Adjusted diluted earnings per share (Non-GAAP)

 

$

1.15

   

$

0.49

   

$

0.66

   

134.7

   
 

NM Not Meaningful

UNITED CONTINENTAL HOLDINGS, INC.

NON-GAAP FINANCIAL RECONCILIATION (Continued)

 

UAL believes that adjusting capital expenditures for assets acquired through the issuance of debt and finance leases is useful to investors in order to appropriately reflect the total amounts spent on capital expenditures. UAL also believes that adjusting net cash provided by operating activities for capital expenditures and adjusted capital expenditures is useful to allow investors to evaluate the company's ability to generate cash that is available for debt service or general corporate initiatives.

   

Three Months Ended
March 31,

 

Capital Expenditures (in millions)

 

2019

 

2018

 

Capital expenditures (GAAP)

 

$

1,609

   

$

944

   

Property and equipment acquired through the issuance of debt

 

92

   

60

   

Property and equipment acquired through finance leases

 

8

   

   

Adjusted capital expenditures (Non-GAAP)

 

$

1,709

   

$

1,004

   
           

Free Cash Flow (in millions)

         

Net cash provided by operating activities (GAAP)

 

$

1,915

   

$

1,709

   

Less capital expenditures

 

1,609

   

944

   

Free cash flow, net of financings (Non-GAAP)

 

$

306

   

$

765

   
           

Net cash provided by operating activities (GAAP)

 

$

1,915

   

$

1,709

   

Less adjusted capital expenditures (Non-GAAP)

 

1,709

   

1,004

   

Free cash flow (Non-GAAP)

 

$

206

   

$

705

   

UNITED CONTINENTAL HOLDINGS, INC.

NOTES (UNAUDITED)

 

(B) Special charges and MTM gains on financial instruments include the following:

   

Three Months Ended
March 31,

 

(In millions)

 

2019

 

2018

 

Operating:

         

Impairment of assets

 

$

8

   

$

23

   

Severance and benefit costs

 

6

   

14

   

(Gains) losses on sale of assets and other special charges

 

4

   

3

   

Total special charges

 

18

   

40

   

Nonoperating MTM gains on financial instruments

 

(17)

   

(45)

   

Total special charges and MTM gains on financial instruments

 

1

   

(5)

   

Income tax expense related to special charges and MTM gains on financial instruments

 

   

1

   

Total special charges and MTM gains on financial instruments, net of income taxes

 

$

1

   

$

(4)

   

Impairment of assets: During the three months ended March 31, 2019, the company recorded an $8 million fair value adjustment for aircraft purchased off lease. During the three months ended March 31, 2018, the company recorded a $23 million fair value adjustment for aircraft purchased off lease and impairments related to certain fleet types and certain international slots no longer in use.

 

Severance and benefit costs: During the three months ended March 31, 2019 and 2018, the company recorded $2 million and $8 million, respectively, of severance and benefit costs primarily related to a voluntary early-out program for its technicians and related employees represented by the International Brotherhood of Teamsters. In the first quarter of 2017, approximately 1,000 technicians and related employees elected to voluntarily separate from the company and received a severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through early 2019. Also during the three months ended March 31, 2019 and 2018, the company recorded $4 million and $6 million, respectively, of management severance.

 

MTM gains on financial instruments: During the three months ended March 31, 2019 and 2018, the company recorded gains of $14 million and $45 million, respectively, for the change in market value of its investment in Azul Linhas Aéreas Brasileiras S.A. During the first quarter of 2019, the company recorded gains of $3 million for the change in fair value of certain derivative assets related to equity of Avianca Holdings S.A. For equity investments and derivative assets subject to MTM accounting, the company records gains and losses as part of Nonoperating income (expense): Miscellaneous, net in its statements of consolidated operations.

 

(C) Interest expense related to finance leases of Embraer ERJ 145 aircraft

 

During the third quarter of 2018, United entered into an agreement with the lessor of 54 Embraer ERJ 145 aircraft to purchase those aircraft in 2019. The provisions of the new lease agreement resulted in a change in accounting classification of these new leases from operating leases to finance leases up until the purchase date. The company recognized $21 million of additional interest expense in the three months ended March 31, 2019 as a result of this change.

 

(D) Effective tax rate

 

The company's effective tax rate for the three months ended March 31, 2019 and 2018 was 20.4% and 20.3%, respectively. The effective tax rate represents a blend of federal, state and foreign taxes and includes the impact of certain nondeductible items and the impact of a change in the company's mix of domestic and foreign earnings.

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This press release was sourced from United Airlines on 16-Apr-2019.