GE Deal - Great News

UnitedChicago

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I've returned to the board to only post good news to quiet the nay sayers :). There's no way that the great GE would cut a deal if their 6 Sigma brainiacs didn't believe in United.


UAL Settlement With GE Capital Calls For $16M DIP Loan

By NICHOLAS P. BRAUDE

Of DOW JONES NEWSWIRES
WASHINGTON -- UAL Corp. (UALAQ) is seeking bankruptcy court approval of a settlement that would restructure the carrier's debts to General Electric Capital Corp. and allow the airline to borrow from a new $16 million debtor-in-possession liquidity loan, according to court papers obtained by Dow Jones Newswires.

In a motion entered on UAL's docket Monday, UAL, which is under bankruptcy protection, said its United Airlines Inc. unit expects the settlement will lead to 2003 cash-flow savings of roughly $50 million and five-year cash-flow savings of about $200 million.

General Electric Capital is the financing arm of General Electric Co. (GE), and is one of UAL's largest creditors. General Electric Co. has $1.9 billion in leases and other financings with the carrier, mostly through General Electric Capital.

The proposed settlement would resolve disputes and some other matters with General Electric Capital, the motion said, and UAL believes it's necessary to acknowledge the critical role the creditor may play in the airline's recovery plan. The agreement reflects General Electric Capital's potential willingness to finance a significant portion of (UAL's) future capital needs, according to the filing.

The U.S. Bankruptcy Court in Chicago, overseeing UAL's case, will consider the matter at a hearing May 23. Objections to the proposed settlement are due Friday.

The motion said the settlement relates to 51 aircraft financed or leased by General Electric Capital.

Claims and disputes that are addressed through the proposed settlement involve transactions between General Electric Capital and UAL during 2002, under which the creditor provided added aircraft financing in exchange for more collateral, court papers said.

Terms of the settlement call for the creation of the $16 million DIP liquidity line, which would be secured by junior security interests on the same UAL collateral that secures January 2002 and May 2002 credit pacts. UAL would use the $16 million for working capital and general corporate purposes.

The two credit agreements from 2002 would be modified to extend the maturity dates of Series A and Series B loans for three years, amend amortization schedules and reduce margin amounts. General Electric Capital and United Airlines would resolve matters in connection with some aircraft leases.

In exchange for its commitments under the settlement, General Electric Capital would receive a commitment from UAL that terms of the settlement would be incorporated into a reorganization plan. The creditor would also get United Airlines' interest in a 777 plane, and would be released from some potential claims.

The $16 million of DIP funds would be available in five draw downs from May 29 through July 28. Interest on the DIP loans would accrue at a one-month London interbank offered rate plus 3.3%, and the loan pact would mature Sept. 30, the motion said.

The proposed settlement allows UAL to avoid litigating potential claims and disputes related to aircraft financing or lease agreements. The motion said the pact would also help the company achieve its short- and long-term restructuring objectives.

UAL filed for bankruptcy protection Dec. 9, 2002, listing assets of $84.3 million and debts of $126.6 million as of Sept. 30, 2002. United Airlines listed assets of $22.73 billion and debts of $21.48 billion as of the same date in another Chapter 11 filing Dec. 9.

-Nicholas P. Braude; Dow Jones Newswires; 202-628-7686; nicholas.braude@dowjones.com
 

atlmd80

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Nov 30, 2002
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I am not sure I would call this great news. First, the article does not mention what the new lease rates will be for those GE airplanes. Second, the company is using a 777 for collateral on the loan. Third, the interest rate is prime +3 percent (not exactly a low interest loan.) Forth, mentioned in the last part of the article, this loan will help UAL meet its short term capital needs. That it''s needed at all is not great. Also, there is an article that says UAL has sold a 747 for 55 million. The article says UAL will pay off some DIP financing with the proceeds. But, 60% of the money will be loaned back to UAL. If my math is correct the company will sell a 747 and pay off 25mil of the DIP. Then just revolve the other 30 million (cash neutral). On top of that the company will put up a 777 for a short term 16mil loan. Two large aircraft off the company balance sheet for a cash increase of 16 million dollars and a pay off of debt of 25 million dollars.

UAL sells 747: http://www.bayarea.com/mld/mercurynews/bus...ess/5825696.htm
 
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UnitedChicago

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Well the alternative was a drawn out fight in court. Trust me...GE is not going to go wasting money. Look what they did with Montgomery Ward.

They aren''t out of the woods, but there has been much better progress.
 

atabuy

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Oct 13, 2002
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On 5/14/2003 9:14:22 PM UnitedChicago wrote:

Well the alternative was a drawn out fight in court. Trust me...GE is not going to go wasting money. Look what they did with Montgomery Ward.


They aren''t out of the woods, but there has been much better progress.

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UnitedChicago,
I could be wrong, but my understanding is the dip people are sure to get there money back if 7 occurs and most likly will be issued stock when UAL comes out of bk.
Like I say I could be wrong, but it seems GE isn''t gambling on this. It is a sure thing.
 

lownslow

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Exactly... GE isn''t really showing any faith in United. They''re hedging their bets here. For most intents, DIP financing more similar to buying an asset than providing a loan. If UAL goes ch. 7, GE has their investment guaranteed, and can withdraw it faster and easier, rather than the drawn-out fight in court over the scraps of the company. That 777 is essentially GE''s now. If UAL avoids ch. 7 and emerges from bankruptcy, they get to keep it, but it still secures the $16 million in debt. If they fail to make payments or file ch. 7, yoink!, GE takes the airplane away without a huge reposession fight in court...
 

G4G5

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Aug 21, 2002
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Read Saturdays NY Times(5/17), Business section

They weren''t overly impressed with the financing.

The thing that shocked me the most was the quote about, not having or just begining to develope, a plan to exit BK. It''s May, we are 6 months into this and mgt is just getting around to coming up with a plan to exit ch 11?
 

ual747mech

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Nov 26, 2002
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Here's the article.



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May 17, 2003
United Insists It Is Acting on Financing
By MICHELINE MAYNARD with ANDREW ROSS SORKIN


Amid criticism within the industry that United Airlines is dawdling on a restructuring plan, officials said this week that they had begun to look for lenders to provide financing for the company's eventual emergence from bankruptcy protection next spring.

The comments from executives at United, which is No. 2 in the industry, behind American Airlines, were viewed as an effort to change the perception that it had not moved as quickly as US Airways to put a plan in place. US Airways, the seventh-largest airline, spent seven months under Chapter 11 protection before emerging in April.

Executives involved in United's efforts said, however, that the search for financing was in only the most preliminary stages and that it could take months. They said the airline had not settled on its revamped structure nor provided much information about the low-fare operation that is the centerpiece of its plan.

The pace of activity is frustrating some industry analysts, who say United, which sought protection from its creditors in December, must move more aggressively, given the competition in the industry.

"There has to be much more transparency in the process at United," said Kevin Mitchell, chairman of the Business Travel Coalition, which represents corporate travel departments and business travelers. "They are dribbling strategic information out a little bit at a time."

Robert W. Mann, an industry consultant based in Port Washington, N.Y., agreed that United needed to be more forthcoming, particularly because it has asked employees, suppliers and others to grant concessions. "I think it's a credibility issue," he said.

Until this week, United, a unit of UAL, had declined to discuss its plans for emerging from bankruptcy protection. But on Thursday, Daniel C. Walsh, United's vice president for sales, addressed the subject during a conference call with managers of corporate travel departments and other major United clients.

"Our attention is turning to exit financing and the development of an exit plan," Mr. Walsh told participants on the call. "This is a seminal moment in the process of bankruptcy in that we are now turning our attention to a point beyond the process of bankruptcy."

In a phone interview yesterday, John Tague, United's new executive vice president in charge of customer services, said: "Clearly the company is executing a plan. We believe it will be successful, and when the time is appropriate, we will share that with the necessary constituencies." He declined to elaborate.

It is not clear how much money United will need from investors to emerge from Chapter 11 protection. It arranged $1.5 billion in debtor-in-possession financing from four major lenders, including J. P. Morgan Chase, when it filed for bankruptcy protection, and it has since met the requirements for drawing on that financing.

Significantly, the Texas Pacific Group, which helped finance the restructuring at Continental Airlines and made a bid to become the lead investor at US Airways after it filed for bankruptcy protection last year, is not talking with United, according to people involved in the discussions.

Since its Chapter 11 filing, United has focused primarily on securing $2.56 billion a year in concessions from six major unions. Those concessions took effect this month. Mr. Mann, however, said that United had asked a bankruptcy judge to impose the concessions if the unions refused. "That's not really an accomplishment," he said.

In contrast, US Airways, which filed for bankruptcy protection last August and emerged in March, took several steps in the six months after it sought court protection. It obtained several sets of labor concessions, provided the court with an outline of its restructuring plan and secured a lead investor, the Retirement Systems of Alabama.

Officials at United contend that their task is much more complicated than the one US Airways faced because United has a broad array of international and domestic routes and partnerships with foreign carriers, including Lufthansa of Germany, Varig of Brazil and Air Canada, which has also filed for bankruptcy protection.

The anchor of United's comeback strategy is a low-fare carrier, being developed under a project named Starfish, that will make up 30 percent of its domestic operations. But United has not said which aircraft it will use, which cities will be affected and how much fares will be.

By contrast, Delta Air Lines announced plans for its low-fare carrier, Song, in February and began flights in April, using Boeing 757 jets on East Coast routes, at fares from $79 to $299 each way. It has since said it will expand Song flights to Las Vegas and the Caribbean.

On Thursday, Mr. Walsh told United's major customers that the airline was on schedule with its plans to roll out the low-fare product late this year or early next year. But in an interview yesterday, Mr. Tague signaled that United might be speeding up the timetable, saying, "I don't think anyone's predetermined a start date."

Mr. Tague, a former chief executive at ATA, Vanguard Airlines and Air South, joined United on Monday, and United is widely expected to draw upon his experience at low-fare airlines. He disagreed that United was at a competitive disadvantage to Delta by waiting.

"I don't think being first is being best," he said. "We have our own time lines, our own internal objectives, and we will make the right decisions for United at the right time."

Mr. Mitchell of the Business Travel Coalition said United should abandon the low-fare strategy, which he termed "a distraction and misallocation of resources."

"There are a great number of questions in the travel community about that," he said, "and there are doubts that United is moving along at a pace to get that done soon."

He said the airline would be better off focusing on improving service to business customers, long a crucial source of revenue.

Mr. Tague said United was doing just that. United is introducing a series of customer-service efforts, like online check-in and self check-in stations at its airports. It is also hiring several hundred more reservations agents, Mr. Tague said, even as it lays off thousands of pilots, flight attendants and ground personnel under the new labor contracts.

Other airlines like Southwest, Northwest and Delta have been using such tools for months and even years, and Mr. Tague acknowledged that United must make up ground. But he said: "We are going to march forward with some very aggressive, some tactical actions in the marketplace, and re-engage our customers very successfully. We will bring our service level in line with what they have the right to expect."
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United Chicago, I'm thinking the same way like you. United will come out of this bankruptcy a leaner stronger company. All the critics, industry consultants and employees alike, don't really know what they are talking about. They say United will not make it, will not meet the DIP's term, and will liquidate soon. Some of my colleagues thought that we were better off going chapter 11(rather than trying to avoid it), taking contract matters to the judge, etc. Although things are more quiet now, we still have "negative" people like this guy: Since its Chapter 11 filing, United has focused primarily on securing $2.56 billion a year in concessions from six major unions. Those concessions took effect this month. Mr. Mann, however, said that United had asked a bankruptcy judge to impose the concessions if the unions refused. "That's not really an accomplishment," he said.

Again, Mr. Mann doesn't know what he is talking about. If the concessions would've been imposed by the judge, it would've created a more hostile work environment because of disgruntled employees and would've created a negative publicity for the company.

Although, I blame mostly past management for the reasons we're in this predicament, I think the current management is doing everything they can to exit bankruptcy as soon as possible for the good of the company.
 

G4G5

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Aug 21, 2002
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"Our attention is turning to exit financing and the development of an exit plan," Mr. Walsh told participants on the call. "This is a seminal moment in the process of bankruptcy in that we are now turning our attention to a point beyond the process of bankruptcy."

The development of an exit plan!
 
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UnitedChicago

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It''s worth noting that the mechanics approved the deal close to a 75% margin. In fact, none of the votes were "close".

Sure the threat of the BK judge voiding contracts loomed. But please recall US Air and the tight, slim margins that the mechanics approved the concessions.

My point is that there has been real, quality progress. The spin masters in the industry and at UA''s competitors continue to poo poo United.

There''s tons of work to be done...but let me make some observations:

-UA is not on a "fast track" CH11 like US Air was, UA always said they would be in CH11 for 1.5 years. Too many are using U''s timing as the standard.
-Why should UA release strategic plans or their new direction now? They''re in CH11 for at least another year...why give a heads up to the competition?
-This article is quick to mention that Delta conceived Song in Feb and it was launched (if you could call it a launch - much of the on-board extras won''t be online until Oct.) in May. Well Song launched with no new contracts for pilots or attendants. This isn''t apples to apples.
-The labor deals are a HUGE accomplishment. They were reached via rank and file approval. Many of these same reporters predicted this would never happen.

So sure - challenges remain. I''m still not sold on the management team. United has taken a lot of beating up. Much of it deserved. But give me a break. Calling the labor deals unimpressive or not a big accomplishment is absurd.
 

Borescope

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On 5/19/2003 1:13:16 AM UnitedChicago wrote:

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Calling the labor deals unimpressive or not a big accomplishment is absurd.

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I think is is absurd. We didn''t have a choice, if we didn''t accept a new contract, the company had set all the wheels in motion to have the judge VOID our contracts, which we all know would have happened. Sure, we maybe got a little better deal by negoitating with the company, but we still got screwed. There was not accomplishment here, just a bully with a big stick that took it from us.
 

ual747mech

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Nov 26, 2002
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On 5/19/2003 1:00:57 PM Borescope wrote:

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I think is is absurd. We didn't have a choice, if we didn't accept a new contract, the company had set all the wheels in motion to have the judge VOID our contracts, which we all know would have happened. Sure, we maybe got a little better deal by negoitating with the company, but we still got screwed. There was not accomplishment here, just a bully with a big stick that took it from us.


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You didn't have a choice? Of course you had a choice. From the time we had a chance to vote the 7% paycut to have a chance of preventing us from going bankrupt and keeping our company mostly intact, ie: not closing maintenance bases, lower paycuts, etc., we always have a choice. The only reason the majority chose to ratify the concession rather have the judge impose it is because they learned their lesson. Oh well, like they say, "What you don't know could hurt you." Also, hearing people #### and whine gets old after a while.
 

novaqt

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I wouldn''t rely on any articles from the NYT, since they just had another reporter fired for "cutting and pasting" other reporters creativity. Who knows whether or not the person(s) they were cutting and pasting their writings were also cutting and pasting?

As we all know, the new media has repeatedly been reporting what they do not know about United and repeatedly presenting UAL in a negative light. United is doing much much better now. United is hiring again. What does that mean; the bleeding has stopped!!! UAL cannot handle all the business they are getting now. So they are putting flights back on and hiring new people. Look for a much improved bottom line next quarter.

So STOP relying on anything you read in any business news publications now. Look at Wall Street, they rely on all the financial news publications. The market is a sideways market right now. Which means NO CONFIDENCE in the markets and the market analysts.
 

MrMarky

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I called UA''s main 800 reservation number early Sunday evening to try and book a trans Atlantic flight from California. Here''s what I got:

First call -- a recording answers and directs you to push buttons to make your selection. I push the corresponding button and it transfers me to a busy signal. This forced me to have to try calling again.

Second, third and fourth calls -- I was greeted by a recorded message that said all agents were busy and to try calling again later and then it hangs up on you!

This is ridiculous. I have NEVER called a major airline reservation number and gotten a recording blowing me off and saying to call back later.

This bankrupt company cannot even answer the phone to book business I guess. Obviously I had enough and called another airline (American). Their system got me through to an agent quickly on the first try and I made the booking with them.

By comparison, I used to fly TWA heavily, and even in their darkest financial days you got through quickly and painlessly when calling reservations. I believe they had established a goal of answering 80% of their reservations calls within 20 seconds. What a difference.

Anyone who wants to experience what a call to an airline reservation number should be like, should try calling 1-800-I FLY SWA. Try it during the peak calling times if you like, such as a weekday morning or afternoon. You''ll get right through, and the ratio of unhelpful idiots at SWA reservations also appears to be quite a bit lower that some other airlines in my experience.

If United isn''t even interested in answering the phone so they can have a shot at your business, who needs ''em?
 

Fly

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Mar 7, 2003
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I just called the 800 number (it''s Tuesday morning) and was able to easily get through to CHANGE an existing reservation, but sure enough, as Mr Markey stated, I got a busy signal to put in a new reservation and it did hang up on me.

I urge all UAL employees to contact United and let them know about this problem. We will essentially be out of business if we can'' even answer a phone call!

Do not put this off, we need these phone calls answered.

Thank you Mr Markey for advising us of this situation.