from someones link on this thread
US groups face huge losses on United leases
By Robert Clow in New York
Published: December 12 2002 21:04 | Last Updated: December 13 2002 3:38
Some of the US's leading companies, including Ford and Philip Morris, are facing billions of dollars of losses on United Airlines leases that they bought to boost earnings and cut their tax bills.
United, which filed for bankruptcy this week, believes it can slash costs by renegotiating its $8bn of aircraft leases that are spread between 300 companies, ranging from Walt Disney to DaimlerChrysler.
It plans to send revised terms to leaseholders over the next three days. The US bankruptcy code gives the airline 60 days to assume or reject leases.
United’s advisers believe it is in a strong negotiating position because of the very weak aircraft market. They argue that lessors who do not to agree to the revised terms will have little option but to add theirs to the growing number of aircraft standing in the Arizona desert.
Holders of the widely dispersed leases include Philip Morris, which has a $386m exposure through 22 leases, and Pitney Bowes Credit, which had a$65m exposure at the end of September.
Electronic Data Systems, the computer services group, has already said that it will write off its entire $40m investment in United leases, while Walt Disney said that it might have to write off some or all of its $114m holding.
Specialist leasing companies also have big exposures to United. General Electric Capital Services, one of the world’s largest aircraft leasing companies, is believed to have $1.7bn of leases with United while Boeing has $1.3bn.
Two other large equipment lessors, Ford Motor Credit and DaimlerChrysler, have hundreds of millions of dollars of exposure, according to leasing experts.
Aircraft leases have been sold to a wide variety of companies in recent years because of the tax advantages they offer and the short-term earnings boost they provide. Aircraft leases are often leveraged using bank loans.
Exposure to United leases is likely to include more international companies than has been the case with previous US airline bankruptcies, such as that of US Airways.
United must significantly reduce its costs if it is to emerge from bankruptcy. This will mean tackling the two main areas under its control: leases and wages.
The airline is also in the process of negotiating with labour unions.
The airline recently asked lessors to accept a 25 per cent cut in rental payment but the lessors refused, something that helped pushed the group into bankruptcy.
General Electric tried to improve its position as a leaseholder by taking part in United’s $1.5bn bankruptcy funding but the airline refused.
Bank One seems to have joined the financing in order to protect its lucrative position providing United’s Mileage Plus credit cards. |
