Selling UAL
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The story...

Only foreknowledge of 9/11 can explain the United Airlines put options bought immediately before the attacks.

Our take...

This simply isn't true.

There were 3,150 puts (we think) purchased for United on the 6th of September, for instance. A lot? Yes, but it's worth noting that there had been much higher spikes before.

In the same period, United Airlines had slightly more action (Aug. 8 with 1,678 puts, July 20 with 2,995, April 6 with 8,212 and March 13 with 8,072).

The same article also notes that UAL wasn’t in good shape, and investors may well have wanted to short-sell them.

Adam Hamilton of Zeal LLC, a consulting company that does research on markets worldwide, has crunched the numbers and recently told Insight magazine:

"The market was in bad shape in the summer and early fall, and you know there were a lot of people who believed that there would be a sell-off in the market long before Sept. 11. For instance, American Airlines was at $40 in May and fell to $29 on Sept. 10; United was at $37 in May and fell to $31 on Sept. 10. These stocks were falling anyway, and it would have been a good time to short them.”

We took the time to investigate the posts at Yahoo! finance, and confirmed that there was some pessimism about the future.

Pilot Furlough
by: ual747pilot (48/M/California) 09/06/01 09:42 am
Msg: 11673 of 148877

By some accounts UAL was losing up to $10M/day at times during July and August. Now that the post Labor Day "reduced" schedule is in place those losses will be down. The airline continues to suffer from greatly reduced yields (down 18-22% from 1999). Primarily because of the service problems of last Spring and Summer, United has lost a greater share of high yield business traffic than many of it's competitors. Service problems continue mostly due to the labor unrest as two major contracts remain open.

United's leadership has been distracted with the failed U acquisition and the Biz-Jet start up, it has been slow to react to the current business enviornment. The announced steps (hiring freeze for many positions, earlier retirement of older aircraft & slowed delivery of new ones to reduce capacity, cut in dividend, etc.) will not stop the flow of red ink by themselves. While I am not "in the know," it is logical that additional measures are being considered at this time (although, given the performance of this management team to date, maybe I am giving them too much credit).

Some of the items that must be on the table include speeding up retirement of aircraft even more, delaying additional deliveries, switching additional stations from mainline to express (to take advantage of RJ's as they are delivered), early retirement and furloughs.

The company is already offering leave of absences to Flight Attendants as a means of reducing staffing. Many open positions within the company are going unfilled. But I have not heard anything about an immenant pilot furlough, although I have heard middle managers discussing it.

Several factors may make pilot furloughs unnecessary for United. The 727 is the last 3 man crew aircraft UAL operates. The vast majority of the Second Officer (Flight Engineer) positions are filled with over 60 pilots. When these aircraft are retired, these over 60 pilots will be forced to retire also. In addition to this attrition, UAL retires well over 300 pilots a year as they reach age 60. This combination will reduce the pilot force 6% by next summer. Considering that United was running hundreds of pilots under FULL staffing during the summer schedule (and over the last several years), this may be enough to handle any further reduction in flying.

The other thing about furloughs to consider is the expense associated with them. Pilots being furloughed come from the bottom of the seniority list and typically all fly the same type of aircraft (the bottom 1000 are on the A320, B737 & B727). A furlough would leave these aircraft short staffed and required pilots from other aircraft to "back fill" the vacancies. These fill pilots would themselves leave vacancies, and so on, and so on. The training to transition hundreds of pilots is not only expensive, but time consuming and the availability of such training is a major factor to consider.

The airline industry as a whole is suffering. Every recession business travel slows dramatically (logical). To survive the airlines must, as a group, reduce capacity or at least slow the growth of capicity. The weaker carriers will reduce capacity more than their competitors.

United, with it's continuing labor problems, is still not putting a consistant, quality product out there. Until it does, it will have weaker than industry results. These results will drive it's internal capacity. If it management doesn't find a way to bring the 100,000 employees together and fast, it will be forced to reduce it's capacity drastically. If that comes to pass, pilot furloughs will be a fact.

Rhapsody in Blue
by: hypingstocksbigtime (102/M/Hypeville, CA)
Long-Term Sentiment: Sell 09/06/01 06:21 pm
Msg: 11686 of 148877

Whatever happened to that theme song?
I miss those days.
Things sure are blue around here now, looking at a 23$/share loss...

We cannot definitively show why the UAL put options were purchased, but considering that there had been higher volumes in the year, the UAL price was falling, and bad news was imminent, it’s not exactly a surprise. And not one that requires foreknowledge of 9/11 to explain.

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