LONDON, 9 December 2002 — United Airlines has arranged a $1.5 billion financing deal to clear the way for what is expected to be the largest ever bankruptcy filing by a US airline.
The so-called “debtor-in-possession” financing deal was settled in talks lasting much of the night in Chicago, ahead of entry by UAL Corp, United’s parent company, into Chapter 11 bankruptcy. Under this mechanism, United will keep flying while a major internal restructuring takes place. The lending group includes BankOne, J.P. Morgan and Citibank.
A special directors’ meeting on Saturday ended without a statement being issued. But all members of the board were present, rather than taking part by conference call, a further pointer that a bankruptcy filing, for which directors must be present in person, is imminent. The beleaguered United, which is losing $8 million a day, is facing debt payments of more than $900 million in the next week, and union leaders predicted ahead of the weekend board meeting that the bankruptcy of the world’s second-largest airline was inevitable.
“With great disappointment, we are now certain a bankruptcy filing appears unavoidable and imminent,” Randy Canale and Scotty Ford, leaders of the machinists’ union, told members. United’s machinists and pilots each have a seat on the board of the airline, which is 55 percent employee owned.
Glenn Tilton, United’s third chief executive in the last 12 months, has warned that bankruptcy was “more likely”, following rejection by a government panel of the airline’s application for a $1.8 billion federal loan guarantee. The guarantee would have paved the way for a $2 billion private loan package, and a financial reorganization underpinned by a five-year, $5.2 billion package of wage cuts agreed by United’s 80,000 workers.
The exact timing of the bankruptcy filing was unclear, though companies often make them at the weekend, when it is harder for creditors to launch court action to block them.
Like every other airline, United was hit hard by the plunge in demand for air travel after 11 Sept. 2001, and expects to report losses for this year even greater than the 2001 deficit of $2.1 billion. But its troubles long predate the terrorist attacks, and stem from weak management, and pay and benefit settlements well above the industry average.
Indeed, several of its rivals, including Continental Airlines which has emerged far healthier from a Chapter 11 filing of its own, argued against the $1.8 billion loan guarantee.
They claimed that if the government granted United’s request, it would merely subsidize an inefficient company and thus distort market competition. (The Independent)
