United bankruptcy fears rise; stock hits 40-year low
By Dave Carpenter
The Associated Press
CHICAGO — United Airlines' stock fell to a more-than-40-year low yesterday on escalating fears of bankruptcy as the cash-crunched airline runs short on time to reach a needed multibillion-dollar agreement with its unions.
Analysts said the likelihood of a fall bankruptcy filing increased as a result of new signs of labor resistance to steep cutbacks, including a statement by the Machinists union that "cost reduction does not necessarily mean pay cuts."
Shares in United sank 11 cents to close at $1.76 yesterday after dipping as low as $1.51. The closing price was the lowest since at least July 1962, according to the University of Chicago's Center for Research in Security Prices.
Yesterday, United lauded its unions for working cooperatively and said the company is progressing on its recovery efforts.
But at least two Wall Street analysts issued notes to investors saying the Machinists' move to negotiate separately with United instead of acting within the all-union coalition signaled a further and potentially critical snag in talks, even if the sides disputed it.
"The apparent splintering of the union coalition lengthens the odds against United reaching agreement with labor in time to avoid a bankruptcy filing before large debt payments come due on Nov. 17 and Dec. 2," said Phillip Baggaley of Standard & Poor's.
United said in August that it faced the prospect of a Chapter 11 bankruptcy filing if it was unable to reach agreement on cost cuts large enough to persuade the federal Air Transportation Stabilization Board to provide a $1.8 billion loan guarantee. It said the cash is needed to pay those fall debt payments, totaling $875 million.
United's new chief executive officer, Glenn Tilton, hasn't said publicly how much in cuts is needed, but he has said the $9 billion proposed by his predecessor was a "reasonable" figure. The union coalition proposed $5 billion in savings Sept. 25, and the two sides have been in talks since then.
"Given UAL's limited time frame, recent developments strengthen our conviction that it will be unable to reach a restructuring plan as required by the ATSB to obtain government guaranteed loans before being forced into bankruptcy," Jim Higgins of Credit Suisse First Boston wrote in a research note.
The Machinists union said it is scheduling discussions next week with United. But its leaders took a tough stance in comments distributed to their members and the media.
"United Airlines needs to reduce its labor costs, but cost reduction does not necessarily mean pay cuts," said Robert Roach Jr., the union's general vice president. "... If needed, wage reductions should only be considered an option when there are no other choices for cost reductions."
United is expected to report on Oct. 18 another substantial loss for the third quarter. It has lost $3 billion since 2000.
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