Liquidation possible if no cost cuts, United says
Wed Mar 19, 7:29 AM ET Add Business - USA TODAY to My Yahoo!
Marilyn Adams USA TODAY
With war possible as soon as today, United Airlines warned that liquidation is possible, and a credit-rating agency said American Airlines could be in bankruptcy court in April.
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As war fears kept many fliers home, the airline industry''s vital signs grew more ominous Tuesday. United parent UAL said in a bankruptcy-court filing that international flight bookings have been off as much as 50% from a year ago and domestic bookings 20% because of war jitters. UAL expects an $877 million first-quarter operating loss.
''''Liquidation is a distinct possibility'''' if UAL doesn''t get deep labor cost cuts through negotiations or the bankruptcy judge, the filing said.
UAL, which is in talks with its unions, has asked the court to let it void its labor contracts to cut costs.
Union leaders pledged to do what''s necessary to keep United flying.
Meanwhile, Fitch Ratings said war creates a ''''very real risk'''' that American parent AMR will follow UAL and US Airways into Chapter 11 reorganization under bankruptcy court protection. AMR is negotiating cost cuts with its unions. Without deals soon, ''''management may decide to move (into Chapter 11) sooner rather than later,'''' said Fitch analyst Mark Oline.
AMR ended 2002 with $2.7 billion in cash, but $775 million was restricted. Daily cash losses exceed $5 million.
''''There''s a greater-than-50% chance'''' United could be forced into liquidation before June 30, Oline said.
UAL said in court papers its revenue through June is $298 million short of forecast and 2003 fuel costs could be up $300 million. Its chief financial officer is meeting this week with bankruptcy lenders to seek relief from cash-flow targets the banks set as a condition of $1.5 billion in loans. Knowledgeable people said this week the banks have discussed war scenarios with UAL and could waive the rules.
* A bill to help airlines will be introduced today by Rep. James Oberstar, D-Minn., but passage isn''t assured. He proposes extending airlines'' war-risk insurance, reopening the federal loan-guarantee program for fuel purchases and drawing down the Strategic Petroleum Reserve, which could lower jet-fuel prices.
* Continental Airlines announced war-related cuts in schedules. It reduced Newark, N.J.-London and Newark-Paris flights 50%. Newark-Tokyo service will go to four flights weekly from seven.
* Standard & Poor''s said it may cut the credit ratings of 11 airlines. Moody''s Investors Service put the credit ratings of Continental, Delta and Northwest on review for possible downgrade, citing insufficient cost cuts and weak travel demand. All three carriers'' debt ratings are already at ''''junk'''' status. Lower ratings make borrowing money more expensive.
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