Chip Question- UAL


Aug 20, 2002
So what is your view on the next week for UAL? Will they make this debt payment on the 2nd that everyone seems to imply is the guilotine? If not will that force the b/k filing?

With the future of UA in the hands of the ATSB, there is much uncertainty surrounding whether or not US' partner will have an out-of-court or in-court reorganization.

From what I understand, the ATSB believes the company's revenue projections are excessively optimistic. In fact, NW submitted a power point presentation to the board disputing UA's claims and DL & CO are being vicious in their challenge of UA's application.

Yesterday UA ALPA MEC Chairman Paul Whiteford told the New York Times, We have been stunned at how far other carriers are willing to go to sabotage United's application.

Unfortunately, UA's sense of desperation seems obvious. Why else would Glenn Tilton have flown to Rio to see his fellow Star alliance bosses would give him a last minute bailout?

It's unclear how the Star will react to UA's request for hard cash, an equity stake, or a loan; however, if Tilton believed he was going to obtain the loan guarantee why would he ask his partners for help as the December 2 public debt payment deadline rapidly approaches?

Meanwhile, the BBC recently reported some observers, with a mixture of logic and mischief, predict that if United collapses the other Star airlines such as Lufthansa and BMI British Midland will make a big public show of bereavement and then replace it with American Airlines before the body is cold, which could explain why the Star partners have yet to step up to the plate to help the Chicago-based company.

In my opinion, the ATSB's unusual step of sending Jake Brace a letter, within hours after 17 UA executives briefed the board for 7 hours, was a public slap on the wrist for a weak application. The letter was sent to UA, but I believe the intent was to send a third party comment to interested parties to let observers know that UA's application was insufficient. If not the case, why make the letter public and just not send a fax to UA?

However, the bottom line is how and when will the board rule?

If I had to guess, I believe the tight-lipped board will provide conditional approval and state something like if you can obtain $2 billion more per year in cuts, we'll give you the guarantee. This could create enormous pressure on UA and its unions and why the company agreed to have the cuts dependent on loan guarantee approval and the unions receiving limited S.1113 protection.

Obviously, if UA cannot immediately arrange $2 billion of emergency debt, underpinned with federal loan guarantees and, most immediately, repay a multi-bank $375 million public debt payment by next Monday, the airline said it will be forced to seek Chapter 11 bankruptcy protection.

But, there is one more option. With the obligation public debt, the company could defer payment and enter into a technical default. This would provide a 10-business day cure period, which would expire on December 16. If the problem is not cured by December 16, the debt would transition to a legal default and the creditors could force the airline into an involuntary bankruptcy.

The problem for the airline is if this scenario occurs the airline will continue to burn cash because the labor cuts will not go into effect on December 1 without the loan guarantee. This could be extremely risky and increase the odds of liquidation, which is something Tilton will seek to avoid, presumably at all costs.

Meanwhile, the markets seem to believe UAL will enter bankruptcy with today's news in a filing with the SEC, UAL's ESOP said it wants to add 9.6 million shares to the 646,163 it didn't sell by the end of last week. That adds up to a total 10.3 million shares to be sold in the next five weeks.

Interestingly, in a recent interview, Paul Gregorowitsch, KLM executive vice president commercial, said Chapter 11 is expected for United any day now, he said. He predicted it may not be able to draw up a restructuring plan that would satisfy a bankruptcy court and may go straight to Chapter 7 - immediate liquidation or sell-off.

I do not necessarily agree with Gregorowitsch's comments, but a liquidation scenario is obviously the intent of UA's rivals who are circling Washington acting like vultures by taking apart UA's cost cutting efforts/revenue projections with the Bush Administration, Congress, and the ATSB.

There is much in play here and the outcome is uncertain, but in my opinion we could end up witnessing the precursor of an interesting corporate transaction, if UA does not end up obtaining the loan guarantee.


I don't understand how the ATSB can listen to the obvious self-serving rhetoric coming from UA's competitors in regards to UA's loan guarantee application. It's almost laughable. I just can't wait till we're stabilized so we can start putting the screws to these airlines again. They've been living off our dysfunctional gravytrain long enough.

As for the ATSB, it's becoming obvious that they still have issues with our application. UA officers, as well as union leaders, will be doing the dog and pony show again this week with the ATSB in hopes of convincing them of approving our application. My opinion is that we will not get it and will file for Ch.11 within the next two weeks.

To answer a previous question, I doubt very much that UA will make that Dec 2nd debt payment. They'd be fools to pay it. It would put our cash position into critical mode. The grace period on that publicly held EETC debt expires on Dec 16. So, if we don't have the loan approved by then, I think it's a no-brainer that we file.

Rhetoric is also beginning to flow out that many mechanics are going to vote down the ERP. It's anyone's guess as to which way this one will go. I have yet to hear IAM endorsement of this deal, so I'm wondering what their stance is. I would have hoped that something would have been learned from US situation, but apparently not. So we'll see how that one turns out. I think it's a given that the AFA and PAFCA votes will pass. But the IAM vote will probably resemble Florida 2000!

As for the STAR alliance, we've been told that Tilton is looking for them to front us the difference between the ATSB loan money and the $2 billion we need. So that's roughly $200 million. I think it's a safe bet we can count on that money. But I don't see the STAR carriers fronting any more than that at this juncture.

The ATSB leaked letter was intentional because they were peaved that UA sent them over 40,000 letters of support for our loan from employees, customers and vendors, as well as numerous pressure from UA's political muscle. THAT was the reason for the letter. It had more to do with them being ticked at UA for all the pressure they're getting than it did for UA's application shortcomings.

But I firmly believe that a Ch.11 filing will take place within the next week or so. The tone and tenor here at UA has shifted in the last week or two. It went from firm optimism for our chances of getting the loan, to softening the blow to a possible bankruptcy filing. Either way, I say do what we have to do and let's finally move forward.
Then Again Chip maybe not:

Pressure mounts on board weighing United Air help

By John Crawley

WASHINGTON, Nov 26 (Reuters) - Senior members of Congress have boosted their lobbying on behalf of United Airlines as the Bush administration nears a decision on whether to give the carrier a loan guarantee to avoid bankruptcy.

Led by House of Representatives Speaker Dennis Hastert, most of the Illinois and Virginia congressional delegations have pressed senior White House, economic, and transportation officials to help the Chicago-based carrier with a $1.8 billion guarantee.

Hastert has spoken to President George W. Bush as well as lobbied Treasury Secretary Paul O'Neill and Federal Reserve Chairman Alan Greenspan about the No. 2 airline's application, a top congressional aide said.

The Treasury, the Federal Reserve and the Transportation Department each have a vote on the three-member stabilization board, which was created by Congress to help airlines struggling financially after the Sept. 11, 2001, attacks.

The speaker is making the case clearly and concisely to influential leaders regarding the decision on the loan guarantee on United's behalf, said Pete Jeffries, communications director for the Illinois Republican.

In those conversations, he continues to make the case why it is so important to keep United flying because of its impact on the traveling public and the nation's economy, he said.

Most agree that a decision is imminent but board members have not signaled whether the bid will be approved. Over the summer, the stabilization board sought more cost savings and recently asked the company for more information about its recovery plan.

But the effort by United, a unit of UAL Corp. [UAL.N], in recent weeks to satisfy the government's demands has impressed some administration officials.

I will say UAL has taken a lot of steps that some thought they couldn't take, said a former government official with knowledge of the loan guarantee deliberations. There is a lot of political support for them going forward.

United has finalized its package of cost-cuts and has presented its financial recovery plan to the board. It also faces a key debt payment on Dec. 2. Failing to meet or renegotiate that would trigger a bankruptcy filing.

In a recent letter to Daniel Montgomery, the stabilization board's executive director, Hastert and other lawmakers promoted United's successful bid to wring more than $5 billion in concessions from its workers.

These unprecedented agreements, coupled with other painful cost cuts and profit measures, makes it clear that United will be a strong competitor and will be able to repay the loan, the letter said.

The stablization board has rejected some applications from other airlines over concerns they would not be able to pay back a loan that was backed by a government guarantee. United has asked the government to guarantee $2 billion in private financing.

Virginia's two Republican senators, George Allen and John Warner, also wrote Bush last week in support of United, which operates a hub there at Dulles airport outside Washington.

Air carriers, including United, are reporting losses, terminating service and cutting jobs, they wrote.

The prospect of a potential war in the Middle East will have a further destablizing effect on this critical sector of our economy. By approving United's application for a federal loan guarantee, the ATSB can help continue air service, Warner and Allen wrote in their letter that was also signed by several House members from Virginia.

While Congress presses the administration to approve the loan, some of United's competitors are questioning whether the company's financial recovery plan, which includes the loan guarantee, is enough to keep it going.

Transportation Secretary Norman Mineta has paid particularly close attention to the United case, weighing in on some crucial details of the carrier's concession plans, administration sources said.

It's more crucial because of the sheer size and logistical challenges that (United) poses, said one administration source. It's taken an enormous amount of time (to review) because we want to make sure we get it right.

11/26/02 16:04 ET

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On 11/26/2002 11:11:03 AM chipmunn wrote:

Unfortunately, UA's sense of desperation seems obvious. Why else would Glenn Tilton have flown to Rio to see his fellow Star alliance bosses would give him a last minute bailout?


Maybe because it was the Annual Star Alliance Membership meeting? They have this gig every damn year. Sheesh.

I have repeatedly discussed the efforts of UA's powerful congressional delegation lead by Dennis Hastert. In my opinion, UA has not convinced the board that its application is financially sufficient and if UA obtains approval it will be due to politics versus the quality of the loan.

For example, 25 percent or $500 million of the $2 billion loan guarantee will go to additional IAM pay (retroactive). This is a huge issue that is sticking in the throat of the board. The board and UA's rivals do not want to use guarantee money for the IAM to get additional money for the next two years.

I agree with UAL777flyers analysis and his comments are similar to what I understand.

Cut and pasted below is another interesting article, which is somewhat discouraging because each day that goes by the odds of a liquidation increase as UA burns through an enormous amount of cash. The problem could be if the board provides conditional approval or rejects the application the labor cuts will not take affect. If this occurrs, management will have to renegotiate new concession agreements and wait for ratification.

I hope this does not occur and as I said before, UA employees should have accepted the $9 billion in cuts over 6 years, which I believe would have enabled the loan guarantee.

UAL Says Deadline is Dec. 31 to Close Financing, Get Labor Cutbacks Approved

WASHINGTON -- UAL Corp. said the contracts for workers who have agreed to $5.8 billion in labor cutbacks would run through May 15, 2008, the company disclosed in a filing with the Securities and Exchange Commission.

The parent of United Airlines added the new union agreements would take effect if the company is able to close a loan facility backed by a $1.8 billion federal loan guarantee and the union membership approves the labor cutbacks. There is a Dec. 31 deadline for the approvals to come.

Getting the guarantee from the Air Transportation Stabilization Board has been an uphill battle, as it is scrutinizing the company's business plan skeptically.

The betting among Bush administration insiders familiar with the board's thinking is that the board, which has three voting members, eventually will reject UAL's application or set conditions so onerous the company will reject them. The board, however, has yet to make even a tentative decision.

The carrier went on to say in its SEC filing that capacity reductions will result in an additional $1.2 billion in profit improvements and, combined with other non-labor cost savings, revenue enhancements and the labor-cost savings, should result in savings and profit improvements of $14.1 billion over the next 5 1/2 years.

Chicago-based UAL, the nation's No. 2 airline, had hoped to get the green light for the loan guarantee soon so it could raise $2 billion in fresh capital and stay out of bankruptcy court. But the company is burning through more than $ 7 million in cash a day and it faces a $375 million debt repayment Dec. 2.

United said in a recent SEC filing that without the loan guarantee and the cost reductions it has to make to get the guarantee, it doesn't expect to be able to have sufficient liquidity to support its obligations through year end. It recently succeeded in postponing $500 million in additional debt coming due in the next few weeks.

Here's my two-cent prediction: UAL will enter bankruptcy to: a. break union contracts and b. eliminate the employee ownership that impedes the BOD's actions with regard to mergers/acquisitions.

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