Financing Arranged


Sep 12, 2002
nited Airlines arranges bankruptcy financing
By Kathy Fieweger
CHICAGO, Dec 8 (Reuters) - United Airlines, the world''s second-largest airline, early Sunday evening finished up arrangements for $1.5 billion in financing needed to keep flying in bankruptcy, paving the way for an expected imminent court filing, people familiar with the situation said.
The bankruptcy would represent the largest ever in the airline industry, which remains mired in a historic money-losing downturn after the Sept. 11, 2001, attacks.
The total amount of the so-called debtor-in-possession financing remained fixed at $1.5 billion, but at the final hour GE Capital [GE.N] pulled out of the group of lenders and was replaced by CIT Group [CIT.N], the sources said.
The other three lenders are JP Morgan Chase [JPM.N], Citibank [C.N] and Bank One [ONE.N], they said. Bank One, based in Chicago, will take the heaviest exposure at $600 million. Of that, half is a separate credit line and half is its share of the remaining $1.2 billion divided equally among the four institutions.
Sources said directors of United Airlines'' parent company, UAL Corp. [UAL.N], would probably not approve a bankruptcy filing until shortly before it would occur.
The board was said to be reconvening Sunday evening.
United, based in the Chicago suburb of Elk Grove Village, Illinois, has hired two high-profile public relations firms to help it present a bankruptcy in the best possible light and to encourage passengers to fly the airline.
The airline''s management realizes it has its work cut out for it, however, as the history of airline bankruptcies shows more failures at reorganization than successes.
A special meeting of UAL directors on Saturday was recessed with no statement issued. A United spokesman declined to disclose any details about what was discussed or whether any additional meetings were scheduled. But board members, who include managers and union representatives, were expected to discuss a potential bankruptcy filing.
United is 55 percent employee-owned, and the pilots and machinists each have a seat on the board. A simple majority vote from the board is required to approve a bankruptcy filing, the spokesman said.
The meeting convened after the government last week decided not to support a critical loan package.
Meanwhile, the International Association of Machinists, District 141M, which represents the airline''s mechanics, told its members there was nothing else employees could do to help United steer clear of bankruptcy.
After a couple of days of speaking with the union coalition and with management, we realize that at this point there''s no alternative available for United Airlines other than bankruptcy, IAM spokesman Joe Tiberi told Reuters. It''s imminent and unavoidable.
Sources said that was despite a last-minute offer by a group of unions to give up another $500 million per year.
United''s flight attendants also see the filing as likely.
What we know, we are expecting the airline to file for bankruptcy at any time, said Jeff Zack, spokesman for the Association of Flight Attendants.
Earlier in the week, the Air Transportation Stabilization Board denied United''s application for $1.8 billion in government backing to support a $2 billion loan from the private sector.
Cash-strapped United has been sliding toward a bankruptcy filing for months, battling with an exorbitant cost structure and set back even further by the toll that last year''s Sept. 11 attacks took on the airline industry. The airline reported a record loss of $2.1 billion in 2001 and has reported losses of about $1.7 billion for the first three quarters of this year.
On Friday, United Chief Executive Glenn Tilton called bankruptcy a more likely outcome. He told employees the airline is ready to file for Chapter 11 protection if executives decide that''s the best course.
United has struggled to achieve wage and benefit concessions from its workers for months. Leaders of five unions had agreed to $5.2 billion in concessions over 5-1/2 years. But the IAM''s 13,000 mechanics last week rejected their portion of the concessions -- a proposed $700 million in wage cuts -- needed to support the loan guarantee.
Shares of UAL fell 7 cents to close at 93 cents on Friday in New York Stock Exchange trade. The stock had traded at more than $100 a share in the late 1990s.

12/08/02 18:40 ET