Phillyguy:
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.
Chip