Struggling United responds to downturn by buying 150 planes

So, you are a struggling company in a struggling sector, what do you do? How about dishing out more than $10 billion during one of the worst slumps ever in your industry. Well, that's the strategy UAL (UAUA), parent company of United Airlines, seems to be employing. According to The Wall Street Journal (subscription), UAL has asked airplane manufacturers Boeing and Airbus to propose "dueling bids" for up to 150 new planes.

The move will probably draw quite a bit of criticism, as UAL is one of the last companies that should be doling out that kind of money. The stock is wallowing in the $5 region and is succumbing to pressure from its 10-week moving average. Naturally, this is a perfect time to try and bury your competitors, right?

Actually, the decsion may not be as reckless as it sounds. Yes, UAL is struggling. Yes, the economy is currently not conducive to thousands of people flying and helping boost air carriers's bottom line. There is some logic, however, to trying to take advantage of the situation. Buried in another article is the fact -- considered "most crucial" to the deal -- that the financing arranged by the winning bidder "not eat into United's cash." It certainly appears that the higher-ups at UAL may have thought this one through and they will not agree to a deal that is going to hurt their current cash position.

If the company, indeed, sticks to those guidelines, it could come out of this deal in really good shape compared to its competitors. These new planes will likely be more fuel-efficient than the company's current gas-guzzling fleet (and its competitors fleets as well), leading to lower costs. The new planes will also be more modern, leading to higher comfort for their customers. All of which could translate to more bang for the company's buck, and ultimately more money in UAL's pocket.

Listen, I'm not guaranteeing that UAL is going to be a high flier, but at least the company is being active in its response to the current economic climate. If this gamble pays off, UAL executives could end up looking like geniuses. If it backfires, they could look like fools. Of course, that's case with just about every business venture: --nothing is ever guaranteed. Time will be the judge of this gutsy move. Still, I like it. UAL is stepping out and trying to grab its sector by the throat. Bold.


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