United Airlines rallies on profit forecast. But it's adapting to the 'reality' of Boeing's difficulties.

By Bill Peters

737 Max 9 groundings cost United $200 million. 'We've adjusted our fleet plan to better reflect the reality of what the manufacturers are able to deliver,' CEO says.

Shares of United Airlines Holdings Inc. rallied after hours on Tuesday, after the airline reported first-quarter results and forecast a second-quarter profit that were above Wall Street's expectations, helped by strong demand and a rebound in business travel.

But United (UAL) said it expects to bring fewer aircraft into its fleet this year, after the government grounded Boeing Co.'s 737 Max 9 jets and placed limits on their production. United, which predominantly flies Boeing (BA) jets, said it has reworked its orders on other aircraft, and has agreements in place to lease a few dozen more jets from Boeing's archrival - Airbus (EADSY).

"We've adjusted our fleet plan to better reflect the reality of what the manufacturers are able to deliver," Chief Executive Scott Kirby said in United's earnings release.

Those adjustments would follow waves of travel disruptions to the airline industry since the pandemic, from the eruption of "revenge travel" to understaffing on flights to production issues at some of Boeing's suppliers. Fewer planes for passengers to fly on, coupled with continued demand, could push airfares higher.

United said it expected second-quarter earnings per share of $3.75 to $4.25. That was above FactSet forecasts for a per-share profit of $3.73. The company stuck with its full-year adjusted profit-per-share forecast of $9 to $11.

Shares rose 5.2% after hours on Tuesday. The stock is still down 2.1% over the past 12 months, when compared to Tuesday's closing price.

"Overall, these results and guide could bring at least some relief to what we would characterize as the oversold situation in United's shares," Citi analysts said in a note on Tuesday.

United issued its forecast in the wake of a several safety mishaps aboard flights - including a tire that fell off a jet and an engine fire - that triggered a government review and prompted the airline to postpone its investor day. Those issues could be an area of focus during the airline's earnings call on Wednesday morning.

United on Tuesday said its first quarter would have been profitable were it not for the grounding of the Max 9 jets, which were pulled from the nation's airspace after a mid-flight door-panel blowout on one of those planes, flown by Alaska Airlines, in January. United said the groundings cost it around $200 million.

The airline reported a first-quarter net loss of $124 million, or 38 cents a share, compared with a loss of $194 million, or 59 cents a share, in the same quarter last year. Adjusted for special charges, unrealizes losses on investments and debt extinguishment costs, United lost 15 cents a share.

Revenue rose 9.7% year over year to $12.54 billion.

Still, the results topped estimates. Analysts polled by FactSet expected United to report an adjusted loss of 58 cents a share, on revenue of $12.45 billion.

"The demand environment remained strong, with a double-digit percentage increase in business demand quarter over quarter, as compared to pre-pandemic," the company said in its earnings release.

It also noted that it was able to "take advantage of a number of opportunities to adjust domestic capacity" - a measure of the total amount of planes, seats and flights in its network - to drive "meaningful improvements in first-quarter profitability."

United said it had converted a portion of Boeing Max 10 aircraft orders to Boeing Max 9s from 2025 through 2027, and that it maintained the right to convert more Boeing Max 10 orders into Max 8s or Max 9s as needed. The company added that it made letter-of-intent agreements with two lessors to lease 35 new Airbus A321neos.

The airline also said that following the groundings of the Max 9, it now expects 61 narrow-body aircraft and five wide-body aircraft to be delivered this year. That would be down from earlier expectations for 101 narrow-body deliveries, amid manufacturing and certification delays.

United in January said it was reconsidering its longer-term plans for the Max 10, after the groundings of the Max 9 raised questions over whether Boeing could make and deliver the planes on time.

CEO Kirby, at a conference last month, said he was encouraged by how Boeing was handling its latest crisis. But he said its problems would take years to solve.

"I think they have accepted that there are larger changes that they need to make," he said. "And it's probably an overused term, but they need to go slow to go fast, and I think they're doing that."

"I think that means, this year, deliveries are going to be way behind what they expected, originally forecast and expected," he continued. "And I am glad that that's the case. As much as I would like those deliveries, this is not a 12-month issue. This is a two-decade issue."

-Bill Peters

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04-16-24 2106ET

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