United Airlines, a subsidiary of UAL Corporation (UAUA) yesterday announced that it will essentially be taking on new debt of $659.1 million by mortgaging 31 of its planes with a later maturity date to refinance its current debt.

The loan amount will be used to settle off existing debt of $556 million, excluding fees. The remaining funds will be used for general corporate purposes. This includes repayment of debt, financing of capital expenditures or funding of potential acquisitions or other business transactions. The new loan will mature in 2016.

As of June 30, United Airlines had 386 aircrafts. The loan will be secured by planes representing 8% of total fleet. The planes had been bought between 1997 and July 2001.

United has significant debt obligations and has suffered massive losses amid the drop-off in revenue due to the global economic downturn.

The company is bolstering its liquidity by taking advantage of current market conditions. The action will reduce United Airlines’ debt payment obligations besides availing adequate cash to fund operations during the winter, when demand for travel remains weak.

Last week, United Airlines announced a new public offering of $19 million common stock and $175 million convertible senior notes due 2029.

Amid the weak economy, credit markets have been tight. But airlines have at times been able to tap those markets to give themselves more breathing room with respect to their debt obligations. Major airlines such as AMR Corporation (AMR), Delta Air Lines Incorporated (DAL) and US Airways Group Incorporated (LCC) have recently announced financing deals.
Read the full analyst report on “UAUA”
Read the full analyst report on “AMR”
Read the full analyst report on “DAL”
Read the full analyst report on “LCC”
Zacks Investment Research