Courtesy: Reuters

United Air Bankruptcy Could Come in Weeks
Friday November 29, 4:37 pm ET
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. 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.