UAL — United Airlines Holdings

Will it survive?

• Can it pay its interest? 3.4×
  Adequate
  Operating income $4.7B ÷ interest expense $1.4B

  Comfortable in a normal year, but below the margin of safety Graham looked for. Worth checking how stable the coverage has been across a full cycle.

• How heavy is the debt? 4.5×
  Heavy
  Total debt $21.3B ÷ operating income $4.7B

  Years of operating profit it would take to repay all debt. A first read, not a credit rating: it's gross debt (not netted against cash) over EBIT (not EBITDA), and a cyclical year distorts it.

• How long is cash tied up? —
  Not enough data

  The filing data didn't include the inputs for this check.

Is it a good business?

• Return on invested capital 12%
  Solid
  NOPAT $3.7B ÷ invested capital $30.6B (debt + equity − cash)

  The rate the business earns on the money tied up in it — Buffett's north star, because over time a stock tracks the ROIC beneath it. Above ~15% sustained hints at a moat; below ~8% the company may destroy value as it grows. Asset-light businesses (R&D expensed, little capital) read artificially high — pair this with Owner Earnings.

• Owner Earnings (free cash) margin 4%
  Thin
  Owner Earnings $2.6B = operating cash $8.4B − capex $5.9B

  What an owner could take out without starving the business. That's 4% of revenue. Treating stock comp as the real expense it is (less $11M of SBC) leaves $2.5B. Honest caveat: capex here blends maintenance and growth, so steady-state Owner Earnings may run higher (see capex vs. depreciation).

• Are earnings backed by cash? 2.51×
  Cash-backed
  Cash from ops $8.4B ÷ net income $3.4B

  How much of reported profit showed up as operating cash. Above 1× is reassuring; well below suggests earnings lean on accruals. One year is noisy — growth and working-capital swings distort it, and this is operating cash, not free cash. Watch the multi-year trend.

How is the cash used?

• Where do the earnings go? 25%
  Reinvests most of it
  Dividends + buybacks $637M ÷ Owner Earnings $2.6B

  Of $2.6B Owner Earnings, $637M (25%) went back to shareholders — $0 dividends, $637M buybacks. Net of $11M stock comp, the real buyback was about $626M. Returning most of it signals a mature cash machine; reinvesting most could mean a long runway — or empire-building. The split doesn't say which; the return earned on it (see ROIC) does.

• Investing or harvesting? 2.00×
  Expanding
  Capex $5.9B ÷ depreciation $2.9B

  Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth — or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency — or a melting asset base). The ratio won't tell you which; the filings will.

Durability & moat — 2016–2025

A moat is a high return that doesn’t fade, reinvested at high returns. Here is what the record says — judgments, not another chart of the numbers.

• Profitable years 8 of 10

  Lost money in 2 year(s) — look at what happened there before trusting the average.

• Return on capital ≥ 15% 0 of 10 yrs

  A moat shows up as a high return on invested capital that holds year after year — not one good vintage.

• Operating margin 11% → 8%

  Margins are slipping — competition or costs are biting in.

• Reinvestment — incremental ROIC 10%

  Reinvested capital earned only a modest return — growth is getting expensive.

• Owner earnings growth +16%/yr

  Free cash to owners grew about 16% a year over the record.

• Worst year 2020 · −41.4% op. margin

  Operations went underwater in 2020 — understand why before trusting the good years.

• Share count −0.1%/yr

  Roughly flat share count — little dilution, little buyback.