-Ian.

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http://story.news.yahoo.com/news?tmpl=story&ncidW8&e=6&cidV8&u=/nm/ 20021129/bs_nm/airlines_united_dc

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.

TIME PRESSURE

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.

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-Ian.

—— http://www.business2.com/articles/web/0,1653,44771,FF.html TECH INVESTOR Who’s Afraid of WorldCom? By: Eric Hellweg Date: October 28, 2002

Think the disgraced telecom giant is dead? Guess again. Under current bankruptcy law, the company could reenter the market debt-free.

While the general public may feel smugly satisfied after watching former WorldCom (WCOM) execs Scott Sullivan and David Myers do the perp walk recently, few realize that the company itself possesses a “get out of jail free” card — thanks in part to WorldCom’s decision to file for protection from creditors in bankruptcy court last July.

By seeking protection from the court, WorldCom hopes to erase most of its $42 billion debt, allowing the company to emerge leaner, meaner, and — unlike all the other large telecoms — debt-free. As a multibillion-dollar company unburdened by debt service, WorldCom would be able to launch price wars or pad its profit margins. That’d be a pretty nifty outcome for an outfit that’s currently under investigation for the largest accounting fraud in history.

“This is unprecedented,” gasps Jeff Kagan, an independent telecommunications analyst, “that a player of this size could change its position so quickly — going in with crushing debt and coming out debt-free.”

Not surprisingly, most of the other giants in the sector, such as AT&T (T), Qwest (Q), and SBC (SBC), that are riding out the Great Telecom Bust are none too happy that a competitor whose executives stand accused of fraud could escape its troubles and gain a decided advantage. “Bankrupt companies are entitled to due process,” says Verizon spokesman Peter Thonis. “But they can’t use bankruptcy to skirt the process by which they’re held accountable to regulatory bodies, particularly when there might be criminal conduct involved.”

Perhaps, but they can certainly use it to reemerge as healthier companies, instead of being sold off for parts. Simply put, more than 200 years of American bankruptcy law was designed to favor creditors, not competitors. “It is a rare situation where an immediate liquidation of a company obtains better returns for creditors than a reorganization,” says Larren Nashelsky, head of the bankruptcy group at Morrison Foerster. “It’s the nature of value that you get better values over time.” Nashelsky says that if WorldCom emerges from bankruptcy, it will do so as a “more streamlined” version of its former self, owned in part by creditors. That is the purpose of bankruptcy proceedings. Unfortunately for the woebegone Baby Bells, WorldCom seems likely to reenter the marketplace, although that probably won’t happen for at least a year.

Mike Balmoris, a Federal Communications Commission spokesman, wouldn’t comment on the Bells’ complaints about WorldCom or what the government might do to regulate the company. But in the meantime, WorldCom is making a strong case for continuing to function as a going concern.

Last week the company filed its monthly operating reports with the U.S. Bankruptcy Court for the Southern District of New York. During the month of July 2002, WorldCom recorded $2.464 billion in revenue and a net loss of $331 million. August’s revenue was down to $2.403 billion, but the net loss was cut to $98 million. The first few months of a company’s bankruptcy are very important in determining how to obtain the best value for its creditors, and WorldCom’s improving performance will bolster the case that it should be kept around.

It’s a wholly plausible scenario: The enfant terrible of the business world could be back on top in a couple of years. Insert your own rebuttal to F. Scott Fitzgerald’s “no second acts in American lives” quote here. Telecom analyst Kagan asks the billion-dollar questions that have the Baby Bells quaking: “As an industry, how do we handle this? Is it fair to have a company have a competitive advantage based on going into bankruptcy? This could force the whole industry to restructure.”

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By Troy Wolverton Staff Writer, CNET News.com August 23, 2002, 1:30 PM PT

More than a year after filing for bankruptcy, the company formerly known as eToys is preparing for its swan song.

EBC I, as eToys is now called, has distributed a plan for dispersing its assets to creditors, the company said in a document recently filed with the Securities and Exchange Commission. Although the company has about $42 million in cash to distribute, its creditors have filed more than $440 million in claims; meaning that most creditors will get only pennies on the dollar and shareholders will likely see nothing at all.

“This is a milestone in the bankruptcy case,” said Gregory Werkheiser, an attorney representing EBC I. “This was proposed by the debtors, but it was worked out in long consultation with the creditors’ committee.”

Creditors have until Sept. 18 to vote on the plan. The U.S. Bankruptcy Court for Delaware will hold a hearing on the plan Sept. 27. The court can choose to accept or reject the plan regardless of how creditors vote.

Once considered one of the leading e-commerce companies and a threat to brick-and-mortar toy sellers such as Toys “R” Us, eToys became one of the biggest flameouts of the dot-com implosion.

The company filed for Chapter 11 bankruptcy last year after a disastrous holiday season in 2000 that saw its sales fall about $100 million short of projections.

As it prepared for bankruptcy, the company laid off most of its staff and shuttered its Web site. Although companies typically file for Chapter 11 bankruptcy with the intention of continuing operations, eToys chose to wind down its business and liquidate its assets.

As part of the liquidation, the company sold off most of its inventory and intellectual property, including its name and Web site address, to toy store chain KB Toys. KB Toys later resurrected the eToys Web site and contracted with EBC I to market KBKids.com and the new eToys site to eToys’ former customers.

U.S. bankruptcy law gives some creditors priority over others when it comes to collecting outstanding payments from bankrupt debtors. Priority goes to companies that continue to do business with debtors after the bankruptcy filing, governments to whom taxes are owed and secured creditors who hold some kind of collateral.

Those types of priority claims account for about $38 million of the total claims filed against EBC I, according to the regulatory document. Of that amount, EBC I expects that about $16.5 million will be approved by the court and the creditors after weeding out duplicative, old or mischaracterized claims. EBC I expects to pay the smaller amount in full to those creditors.

Werkheiser declined to give the names of eToys’ creditors.

In contrast to the priority claims, unsecured creditors, including those holding the company’s debt notes and bank loans, will not receive full payment under the disbursement plan. Creditors have filed about $404 million in unsecured claims against EBC I, of which the company expects the court to approve about $250 million.

For those unsecured creditors, EBC I proposes paying about $9.2 million, or 77 percent, of the $11.9 million in allowed senior unsecured claims; $7.9 million, or 5.2 percent, of the $152.5 million it owes to unsecured note holders; and $8.9 million, or 10.4 percent, of the $85.5 million in other unsecured claims.

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