Shit! I’ve got 77,000 Frequent Flier miles with those bastards!
United Air Bankruptcy Could Come in Weeks 2 hours, 55 minutes ago Add Business – Reuters to My Yahoo!
By Kathy Fieweger
CHICAGO (Reuters) – United Airlines is likely to file for bankruptcy within the next two weeks unless it can soon get a new wage-cut deal from reluctant mechanics and a crucial federal guarantee of a $1.8 billion loan, sources familiar with the matter said on Friday.
Mechanics at United, the No. 2 U.S. airline, on Wednesday rejected $700 million in proposed pay cuts over 5-1/2 years. The rejection sharply increased the odds of bankruptcy as a $375 million debt payment comes due on Monday.
Shares of United’s parent UAL Corp. (NYSE:UAL – news) fell 31 percent on Friday, and a major credit rating agency downgraded the company’s long-term debt.
“The mechanics’ vote makes bankruptcy virtually inevitable for United and UAL,” wrote Philip Baggaley, an analyst for credit rating agency Standard & Poor’s.
The mechanics’ rejection jeopardizes pay-cut agreements achieved by sister unions, including those for pilots and flight attendants. All the unions involved said the givebacks were contingent on every union taking part in the sacrifices.
UAL shares closed off $1.12 at $2.51 in active trading on the New York Stock Exchange (news – web sites). The stock was the largest percentage loser on the exchange.
Various media reports have listed Dec. 2 as the likely day for a bankruptcy filing, but sources familiar with the matter said that was never the actual deadline to turn to the courts.
For one thing, United still has no debtor-in-possession financing lined up to keep operating, even though sources said it has been talking to major banks, including JPMorgan Chase (NYSE:JPM – news) and Citicorp (NYSE:C – news), along with GE Capital (NYSE:GE – news) and Boeing Capital (NYSE:BA – news).
UNITED HAS GRACE PERIOD
The debt payment due on Dec. 2 is on aircraft-backed securities called Enhanced Equipment Trust Certificates, publicly held debt that has better protection generally and under U.S. bankruptcy law than other forms of credit. There is a 10-day grace period, however, for United to make the payments to creditors without being considered in default.
In a bankruptcy proceeding, issues must be resolved within 60 days, according to section 1110 of the federal code, and after that lessors and financiers have the right to take back their planes, engines and spare parts.
During the grace period on the EETCs that runs until Dec. 12, United will work feverishly to get a new deal with union mechanics and will again press its case to federal officials weighing the loan guarantee, sources said.
The International Association of Machinists, District 141M, said on Thursday its 13,000 members rejected their portion of a $1.5 billion wage concession deal by a 57 percent margin. Some 24,000 other IAM members, including public service workers and baggage handlers that are part of a separate bargaining unit called District 141, approved their portions of the cuts that totaled $800 million.
United, based in Elk Grove Village, Illinois, said it immediately began new talks with the mechanics. But union spokesman Joe Tiberi on Friday said no such talks had taken place or been scheduled.
After long negotiations, United recently secured agreements for wage cuts of $5.2 billion from the leadership of five unions as part of a financial recovery plan. That plan is a cornerstone of its loan guarantee application, which is being considered by the Air Transportation Stabilization Board.
That government board was established last year to help airlines struggling financially with the fallout of the Sept. 11 hijack attacks.
A spokeswoman for the board had no comment on United’s case. The board has not said when it would decide on United’s application but a decision was expected soon because of the carrier’s debt-payment deadline and other financial pressures.
Even though there still may be time for a new agreement with mechanics, analysts said on Friday it was highly unlikely United could avoid bankruptcy.
“Time is running out for UAL to come up with a restructuring package to go to the ATSB to secure a $1.8 billion loan guarantee,” said Blaylock & Partners analyst Ray Neidl, who cut his investment rating of UAL to “sell” from “hold.”
“We had expected the memberships of all the unions to approve the changes,” Neidl said. “With this setback, it looks like a bankruptcy filing cannot be avoided.”
S&P on Friday cut its long-term credit ratings for UAL and United to its third-lowest “junk” grade other than default.
“Even if an agreement is reached, the Air Transportation Stabilization Board is not likely to approve a business plan that scales back promised labor concessions from levels already challenged by some as being insufficient to help correct United’s high operating cost structure,” S&P’s Baggaley said.
The airline, bleeding about $8 million in cash daily, is willing to modify some aspects of the tentative agreement but must have the same amount of concessions from mechanics — $700 million, according to Chief Financial Officer Jake Brace.
Paul Whiteford, head of the United pilots union, said on Friday he was still hoping for a deal from the mechanics, saying: “I hope that they can continue to reach an agreement for an out-of-court recovery.”
Like other U.S. airlines, United has posted billions of dollars in losses since last year’s attacks on New York and Washington. Unlike other airlines, United is 55 percent owned by employees, and both pilots and machinists have seats on the board of directors.