United Airlines Bankruptcy Expected Monday
Sunday December 8, 9:18 pm ET
By Kathy Fieweger
CHICAGO (Reuters) - United Airlines, the world's second-largest airline, early Sunday evening finished up arrangements for $1.5 billion in financing needed to keep flying in bankruptcy, paving the way for a court filing expected Monday, people familiar with the situation said.
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The bankruptcy would represent the largest ever in the airline industry, which remains mired in a historic money-losing downturn after the Sept. 11, 2001, attacks.
Another big U.S. airline, Arlington, Virginia-based US Airways Group, filed for bankruptcy in August and several smaller carriers have shut down altogether.
After the attacks on New York and Washington using four commercial jetliners -- two of which belonged to United -- the industry slipped into a tailspin the likes of which it had never seen before and was ill-prepared to handle.
With high debt loads and fixed costs, executives at airlines across the country scrambled to conserve cash.
But for United, with a special history of labor trouble and union pay scales that led the industry, the downturn has proved too difficult to navigate. The U.S. government last week rejected the airline's bid for federal loan guarantees, which was its last hope for securing fresh capital.
Sources said the government's rejection, which angered unions and many veteran, high-ranking politicians, came despite a last-minute offer by a group of unions to the Air Transportation Stabilization Board to give up another $500 million per year in wage concessions.
Leaders of a union coalition had agreed to a total $5.2 billion in wage cuts over 5-1/2 years, but rank-and-file mechanics rejected their $700 million portion the night before Thanksgiving, dealing the bailout plan a blow.
United spokesman Joe Hopkins had no comment on the anticipated Monday bankruptcy filing.
"We're not planning any announcements tonight," he said.
FOUR BANKRUPTCY LENDERS
The total amount of the so-called debtor-in-possession financing remained fixed at $1.5 billion, but at the final hour GE Capital pulled out of the group of lenders and was replaced by CIT Group, the sources said.
The other three lenders are JP Morgan Chase, Citibank and Bank One, they said. Bank One, based in Chicago, will take the heaviest exposure at $600 million. Of that, half is a separate credit line and half is its share of the remaining $1.2 billion divided equally among the four institutions.
Banks and others are willing to lend United the money in bankruptcy, because these particular credit lines get paid back first.
Sources said directors of United Airlines' parent company, UAL Corp., would probably not approve a bankruptcy filing until shortly before it would occur.
The board was said to be reconvening Sunday evening.
United, based in the Chicago suburb of Elk Grove Village, Illinois, has hired two high-profile public relations firms to help it present a bankruptcy in the best possible light and to encourage passengers to fly the airline.
AIRLINE BANKRUPTCIES A MIXED BAG
The airline's management realizes it has its work cut out for it, however, as the history of airline bankruptcies shows more failures at reorganization than successes since the industry was deregulated in 1978.
United is 55 percent employee-owned, and the pilots and machinists each have a seat on the board after a 1994 employee stock ownership plan was put in place. A simple majority vote from the board is required to approve a bankruptcy filing, the spokesman said, which generally leaves the stock held by employees and public investors worthless.
The meeting convened after the government last week decided not to support a critical loan package.
International Association of Machinists President Thomas Buffenbarger on Sunday night told Reuters his group intends to help the carrier return to profitability.
"The only comment I have at this time is that we'll be prepared to represent the 83,000 employees of United Airlines and the 45,000 IAM members that work hard. We have confidence we're going to emerge from bankruptcy -- it's a great airline."
United's flight attendants were also resigned to the inevitability of bankruptcy.
"What we know, we are expecting the airline to file for bankruptcy at any time," said Jeff Zack, spokesman for the Association of Flight Attendants.
The airline reported a record loss of $2.1 billion in 2001 and has reported losses of about $1.7 billion for the first three quarters of this year.
On Friday, United Chief Executive Glenn Tilton called bankruptcy "a more likely outcome." He told employees the airline is ready to file for Chapter 11 protection if executives decide that's the best course.
Under Chapter 11 of the federal bankruptcy code, a company can continue operating and keep its creditors at bay while it restructures its business. In contrast, a Chapter 7 bankruptcy filing forces a business to liquidate its assets.
United has struggled to achieve wage and benefit concessions from its workers for months and ended up with far less than the $9 billion the interim CEO Jack Creighton had said was necessary to turn the airline around.
Shares of UAL fell 7 cents to close at 93 cents on Friday in New York Stock Exchange trade. The stock had traded at more than $100 a share in the late 1990s. |
