United Airlines multinational finance Research Paper

United Airlines multinational finance - Research Paper Example United Airlines (UAL) is the major United States airline with the largest number of destination and passenger flights. It caters to the customers’ demand of maximum luxury and comfort during flight. It is the most in-demand airline for all employees and shareholders to invest. It is the world’s most inclusive set of connections worldwide with first-rate international gateways to Asia and Australia, Europe, Latin America, Africa and the Middle East. United Airlines has its base almost everywhere in the US with non-stop or one-stop services. Its fleets are the most fuel-efficient among all the US network carriers. It has ten most advantageous central locations in the four largest cities in the US (UAL, Factsheet 1). The overseas subsidiaries of UAL are United Express, Ted, Continental Express and Continental Connection carriers. United Express and Ted are premium and low-cost subsidiaries of UAL. With these two subsidiaries, UAL participates in the entire scale of the con sumer market. These are regional operators and act as additional services of UAL’s mainline network. These subsidiaries add to UAL’s operations by carrying flights that connect to the mainline service. These subsidiaries also can allow a more number of flights in smaller cities than would not have been economically viable with full sized mainline jet aircraft (UAL, Form 10-K 5). The total number of aircrafts owned and leased by the subsidiaries is 552 (UAL, Form 10-K 29). In 2009, UAL had an operating revenue from mainline passengers of $11,313 million as reclassified and $11,910 million as historical. In the same year, UAL had an operating revenue from regional passengers of $2,884 million as reclassified and $3,064 million as historical. Other operating revenues were $1,602 million as reclassified and $825 million as historical (UAL, Form 10-K 99). Foreign Exchange Risk Management Policy UAL being an international airline garners revenues and makes expenditures in nu merous foreign currencies. Some expenses include aircraft leases, commissions, catering, personal expense, advertising and distribution costs, customer service expense and aircraft maintenance. Fluctuations that occur in the rates of foreign currencies exchanges have a major effect on the service of UAL and â€Å"cash flows through changes in the dollar value of foreign currency denominated operating revenues and expenses† (UAL, Form 10-K 140). In order to effectively reduce the possibilities of risk, the Company may use foreign currency forward contracts to avoid a part of its vulnerability to changes. UAL does not enter into foreign currency derivative contracts for purposes other than risk management. In 2009 and 2010, United did not have any foreign currency derivatives. Continental had foreign currency derivatives with a fair value of $7 million in 2010 and $5 million in 2009. During these two years, according to financial statements, there were no significant hedge gain s or losses (UAL, Form 10-K 140). UAL emphasizes North American and hence is not vulnerable to US$ exchange rate risk. For this, UAL does not have to worry about risk related to foreign exchange while buying fuel because oil is traded in US$. This is one advantage for UAL (Muck and Rudolf 573). Some of the most common foreign exchange transactions of the Company are Canadian dollar, Chinese renminbi, Japanese Yen, British pound and European Euro (UAL, Form 10-K 74). UAL’s foreign currency exchange rate changes were 11 million in 2010 and 8 million in 2009 (UAL, Form 10-K 121). Fluctuations in foreign exchange rates can affect UAL in various ways. The scopes and variations of foreign exchange impact can be immense. Foreign exchange exposure is of significant importance to UAL as the large aircrafts travel into foreign markets (Levi 303). Net cash flows of UAL that include foreign currency cash flows have increased in 2010 by $941 million from 2009. There has been a steady incr ease in cash flow over the last few years and the principal sources