The Bear Raid on United Airlines Stock
When short sellers collaborate to push down the price of a stock through coordinated short-selling and/or the spreading of false rumors, such as United Airlines, it is considered to be manipulation by the SEC, and both acts are considered illegal — which is known on Wall Street as a “Bear Raid” attack.
The bear raid attack on United Airlines (Stock Symbols: UAL – UAUA) occurred when there was a story released that the company was going bankrupt and this false story was picked up by the mainstream news media.
A massive sell-off in United Airlines stock dropped 70% in a matter of minutes. Trading was halted on the stock and the company began to passionately deny all of the false claims. The stock finally began trading again and quickly rallied back to its previous level. This is a clear example of a bear raid, where traders were able to shore-up the stock at $10.80 and then re-enter the market with a long position below $4.00 per share.
A bear raid is a tough operation to pull off. For starters, the Securities Exchange Commission (SEC) closely monitors suspicious trading activity on the exchanges. So, in order to execute a successful bear raid it takes more than one powerful trader. Below are some key items to look for in a bear raid:
1. Enormous amounts of unsubstantiated negative news flooding message boards, blogs, and the news media.
2. Large “Short Sell” orders continuously flooding the market.
This one two punch will go on until the price begins to break. Once the “Market Manipulators” realize that the price has been driven to an extreme, they will take a long position in anticipation of the market recovering. The end result is that the manipulators are able to benefit from both the bear raid down and the subsequent rally back to the true market value of the security.
In 2000, UAL’s fortunes began to dim and in April 2000, the ESOP investment period ended for most US employees, prompting United’s unions to fight for higher wages. Labor issues, air traffic congestion and poor weather forced UAL’s United unit to implement widespread flight cancellations in the summer of 2000, harming the airline’s reputation. Additionally, UAL Corporation announced its intent to merge with US Airways Group, Inc., the operator of American airline US Airways. The deal collapsed in mid-2001, due to lack of support from the U.S. government and employees. Then came the tragedy of September 11 and the company ended 2001 with a record loss of $2.1 billion.
As losses continued in 2002, Glenn Tilton, a former Texaco CEO with experience operating a company in bankruptcy, was brought in by UAL’s Board of Directors to try and prevent bankruptcy, or, if needed, successfully guide the company through a bankruptcy process. Tilton was appointed Chairman, President, and CEO of UAL Corporation and United Air Lines, Inc. in September 2002. Tilton sought wage cuts from employees and applied for a U.S. government loan guarantee to avoid filing for bankruptcy.
By early December, the company had reached agreements with most of its unions for wage reductions, but its loan application was rejected Dec. 4. On Dec. 9, UAL and its subsidiaries filed for Chapter 11 reorganization. UAL quickly received debtor-in-possession (DIP) financing to allow it to continue “business as usual” while it reorganized its debt, capital and cost structures. The year ended with UAL seeking immediate voluntary wage reductions from all employee groups or permission from the bankruptcy court to impose those reductions in order to meet the strict covenants established by the DIP lenders.
What followed would be one of the largest, longest, and most complex bankruptcy cases in US history. UAL Corporation and its subsidiaries emerged from bankruptcy protection on February 1, 2006.
On December 8, 2009, UAL Corporation announced that it has placed an order for 25 Airbus A350 and 25 Boeing 787 aircraft, with purchase rights for 50 more of each aircraft. UAL Corp. will be the second US carrier to operate the Airbus A350.
The years since bankruptcy have been marked by mixed results for UAL. The company turned a profit in 2007, yet the fuel crisis in the summer 2008, where NYMEX Light Sweet Crude reached almost $150 a barrel, pushed the company into losses. To try to put an end to UAL’s decades of boom and bust cycles, CEO Tilton has been pushing for a merger with another major US carrier. Tilton has stated he believes that having larger market-share and a more diverse route network are the way for UAL to reach sustainable profitability, though many, including UAL’s unions groups, have strongly disagreed.
In early 2008 UAL Corporation held merger talks with American airline operator Continental Airlines, Inc. However, the deal was called off after problems in the credit markets, as well as weak support from labor groups, made an official merger impossible. UAL’s United instead decided to form an alliance with Continental.
However, in May 2010 United Airlines announced a full-scale merger between the two carriers and the new airline will use the trade name United Airlines with the Continental logo.
Tags: $150 a Barrel, Airbus, American Airlines, Bankrupt, Bear Raid, Board of Directors, Boeing, Chapter 11, Continental Airlines, Credit Markets, ESOP, False Story, Long Position, Merger, Negative News, NYMEX Light Sweet Crude, Oil, SEC, Securities Exchange Commission, Sell-Off, Short Sell, Short Sellers, Short Selling, Suspicious Trading Activity, Sustainable Profitability, UAL, UAUA, Unions, United Airlines, US Airways, US Airways Group