Gooney Bird
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Goodbye Debt Rating And Future A/c
- Thread starter Gooney Bird
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I see UAL losing this one. Secured debt is secured debt, and coordinated actions by the secured creditors doesn't change that fact. If you don't pay on the secured debt, you will likely lose the collateral.
UAL's alleged antitrust conspiracy case is really independent of the issue of the secured debt. It will be free to pursue its antitrust case against the lenders, but it won't have the airplanes.
And on the antitrust case - I see UAL losing that one also.
The clock is ticking over there - and it's time to shut it down.
UAL's alleged antitrust conspiracy case is really independent of the issue of the secured debt. It will be free to pursue its antitrust case against the lenders, but it won't have the airplanes.
And on the antitrust case - I see UAL losing that one also.
The clock is ticking over there - and it's time to shut it down.
FWAAA said:
There have been two strange items in UA's bankruptcy. First is this bankruptcy judge not letting the leasing companies reposess their aircaft for non payment. I agree with your assesment FWAAA. The second strange item, which is on the UA board, is that UA is suing it's creditors. I could not believe that this rediculous bankruptcy law exists, but it evidently it does. Basically it allows UA to recoupe payments (or a portion?) already paid to the creditors who are still owed money by UA. UNBELIEVABLE!
aafsc said:
The preference payment recovery issue has always been controversial. In theory, it makes sense. You don't want management to be able to favor some creditors but stiff others. Bankruptcy law is really all about an orderly process like probate to make sure creditors are treated the same as other creditors in the same class.
But what looks fair and sane on paper can become outrageous-looking in practice. UAL paid some of its bills but not all of its bills during the 90 days before it filed. And some of the money UAL now seeks to recover is probably for payments in the ordinary course of business, which cannot be recovered. Some are probably extraordinary, and should be recovered. Doing business with distressed companies is riskier than doing business with GE or Wal-Mart, and they knew it.
Some of the creditors' statements ("We had no idea UAL was going to file Ch 11") are too outlandish to be believed. It was obvious that if the ATSB turned UAL down, it would have to file. Sure enough, the loan guarantee was denied, and shortly after, UAL filed Ch 11.
WorldTraveler
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This does not bode well for aircraft leasing companies at least in the short term since UAL will try to drag this out as long as possible. In the meantime, AA and DL esp. might succeed at renegotiating some of their leases. If this is allowed to stand, the airlines are in a much stronger position. Ultimately, the airlines will pay for it in higher lease costs but in the short term it could be an opportunity for the solvent airlines to reduce lease terms since the threat of bankruptcy will send an even bigger chill up the spines of leasing companies.
jimntx
Veteran
I fail to see where one company in an industry getting away with not paying legal debt AND not having to give back the purchased product that was not paid for, can be good for other companies in that industry.
Gee, maybe it would be good for all homeowners if I could just refuse to pay my mortgage and get a court to stop foreclosure by the mortgage company.
Gee, maybe it would be good for all homeowners if I could just refuse to pay my mortgage and get a court to stop foreclosure by the mortgage company.
WorldTraveler
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Jim,
If UA succeeds at holding onto aircraft on which it has unpaid debt and for which they contend the payments are too high, in the short term the ball goes into the airlines' court. I don't think AA, CO, DL, or NW are on the verge of bankruptcy but if they were this move would clearly give them more leverage in trying to get lower lease rates.
Longer term, it is never beneficial to anyone for one entity to fail to meet its financial obligations. All US airlines will pay if UA succeeds at dumping their obligations. Since there are relatively few aircraft on order by the US legacy airlines, costs will probably be shifted to other sectors and buyers more than US legacy airlines.
This also points out that it may well be in AA, CO, DL, and NW's interests to acquire large fleets of relatively new used aircraft out of their bankruptcy proceedings rather than buy new aircraft down the road. AA or DL might be able to pick up 100-200 A320s in US or UA fails at rates that are far cheaper than if they have to buy new planes from Boeing. AA has a large fleet of aging S80s to replace while DL has something like 75 older generation 737s.
If UA succeeds at holding onto aircraft on which it has unpaid debt and for which they contend the payments are too high, in the short term the ball goes into the airlines' court. I don't think AA, CO, DL, or NW are on the verge of bankruptcy but if they were this move would clearly give them more leverage in trying to get lower lease rates.
Longer term, it is never beneficial to anyone for one entity to fail to meet its financial obligations. All US airlines will pay if UA succeeds at dumping their obligations. Since there are relatively few aircraft on order by the US legacy airlines, costs will probably be shifted to other sectors and buyers more than US legacy airlines.
This also points out that it may well be in AA, CO, DL, and NW's interests to acquire large fleets of relatively new used aircraft out of their bankruptcy proceedings rather than buy new aircraft down the road. AA or DL might be able to pick up 100-200 A320s in US or UA fails at rates that are far cheaper than if they have to buy new planes from Boeing. AA has a large fleet of aging S80s to replace while DL has something like 75 older generation 737s.
JungleClone
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This won't really impact UA's ability to secure future aircraft financing. There is always someone willing to help you finance aircraft. They can just play Boeing and Airbus off against each other to broker the best deal available. In fact, UA has been in on-again/off-again negotiations for Airbus to play a role in our exit financing. You don't think that Airbus would twist themselves into a pretzel to help United get all those B737's off the property for good and replaced with more A319/320 family aircraft? Remember, too, that Boeing is getting ready to build their new 7E7. Orders haven't exactly been flying in. They'll do what they need to do to coax as many orders as possible. The point is that even given UA's poor financial condition, they would still be able to broker aircraft financing if the time comes to make a purchase. TWA is a perfect example. Remember when they got those new B757's and the last MD-83 order and the B717's? Their financial and credit picture was about as bad as it could get. Did it keep them from getting planes? No.
North by Northwest
Veteran
Section 1110 of the US BK code provides, in relevant part, as follows:
(a)(1) The right of a secured party with a security interest in equipment described in paragraph (2) or of a lessor or conditional vendor of such equipment to take possession of such equipment in compliance with a security agreement, lease, or conditional sale contract is not affected by section 362, 363 or 1129 or by any power of the court to enjoin the taking of possession unless--
(A) before the date that is 60 days after the date of the order for relief under this chapter, the trustee, subject to the court's approval, agrees to perform all obligations of the debtor that become due on or after the date of the order under such security agreement, lease, or conditional sale contract; and
(B) any default, other than a default of a kind specified in section 365(B)(2) under such security agreement, lease, or conditional sale contract--(i) that occurs before the date of the order is cured before the expiration of such 60-day period; and
(ii) that occurs after the date of the order is cured before the later of--(I) the date that is 30 days after the date of the default; or
(II) the expiration of such 60-day period.
This is a loose loose move for those nuckel heads running Ual. Case law for repossessing aircraft as a group has already been set in several former airline bankruptcies, Western Pacific, EAL, Pan Am. This was a move made by UAL of desparation. This particular group of creditors control 1/3 of the UAL fleet. United has a debt structure, consisting of:
$3,100,000,000 of various aircraft-backed mortgages secured
by 87 aircraft;
4,000,000,000 of various aircraft-backed enhanced equipment trust certificate financings secured by 100
aircraft;
1,800,000,000 of various capital lease obligations with
respect to 69 aircraft;
5,500,000,000 of various operating lease obligations with
respect to 243 aircraft;
Once the creditors settle the Anti-Trust issue they will no doubt go after the most valuable a/c and place them with a viable entity.These are secured creditors whom cannot be denied possession of their property. If one is to view UAL's positon on the Anti-Trust issue ...take note Bank One, Morgan Stanley, Citigroup, Smith Barney and all others whom might have provided BK exit financing. The DIP financing is structured as a $300 million facility from Bank One and a $1.2 billion facility from a group that is led by J.P. Morgan Chase and Citibank, and includes
CIT Group and Bank One ( which already has a $1.5 Billion dollar exposure to United. Access to $700 million of the $1.2 billion facility is subject to certain terms of the facility. Here's the bottom line from United's perspective: "Absent near immediate access to the DIP Facilities, the Debtors will not survive. Based on their current business plan, the Debtors will need to begin accessing the DIP Facilities almost immediately upon their availability. Any delay in the granting of this Motion would be devastating. The Debtors' businesses are service
businesses, and their most valuable assets are their customers. It is crucial to the Debtors' reorganization efforts that the public maintain confidence in the Debtors' present and future ability to provide reliable services. Because of the Debtors'
commencement of these Chapter 11 cases, the Debtors must be allowed to take immediate, active steps to preserve their customer base and essential relationships with, among others, the traveling public, tour operators, cargo and travel agents, other airlines with which they have agreements, fuel suppliers and
other essential trade creditors, and certain other business entities. The Debtors must be allowed to continue their operations in a manner unaffected by the commencement of these Chapter 11 cases, for even a short disruption will
generate substantial uncertainty and seriously impair the Debtors' ability to successfully reorganize. ( this is why United MUST win this case aginst the a/c creditors)
Ual's combative stance towards vendors with whom it has conducted business , poses a critical risk for its survival.
(a)(1) The right of a secured party with a security interest in equipment described in paragraph (2) or of a lessor or conditional vendor of such equipment to take possession of such equipment in compliance with a security agreement, lease, or conditional sale contract is not affected by section 362, 363 or 1129 or by any power of the court to enjoin the taking of possession unless--
(A) before the date that is 60 days after the date of the order for relief under this chapter, the trustee, subject to the court's approval, agrees to perform all obligations of the debtor that become due on or after the date of the order under such security agreement, lease, or conditional sale contract; and
(B) any default, other than a default of a kind specified in section 365(B)(2) under such security agreement, lease, or conditional sale contract--(i) that occurs before the date of the order is cured before the expiration of such 60-day period; and
(ii) that occurs after the date of the order is cured before the later of--(I) the date that is 30 days after the date of the default; or
(II) the expiration of such 60-day period.
This is a loose loose move for those nuckel heads running Ual. Case law for repossessing aircraft as a group has already been set in several former airline bankruptcies, Western Pacific, EAL, Pan Am. This was a move made by UAL of desparation. This particular group of creditors control 1/3 of the UAL fleet. United has a debt structure, consisting of:
$3,100,000,000 of various aircraft-backed mortgages secured
by 87 aircraft;
4,000,000,000 of various aircraft-backed enhanced equipment trust certificate financings secured by 100
aircraft;
1,800,000,000 of various capital lease obligations with
respect to 69 aircraft;
5,500,000,000 of various operating lease obligations with
respect to 243 aircraft;
Once the creditors settle the Anti-Trust issue they will no doubt go after the most valuable a/c and place them with a viable entity.These are secured creditors whom cannot be denied possession of their property. If one is to view UAL's positon on the Anti-Trust issue ...take note Bank One, Morgan Stanley, Citigroup, Smith Barney and all others whom might have provided BK exit financing. The DIP financing is structured as a $300 million facility from Bank One and a $1.2 billion facility from a group that is led by J.P. Morgan Chase and Citibank, and includes
CIT Group and Bank One ( which already has a $1.5 Billion dollar exposure to United. Access to $700 million of the $1.2 billion facility is subject to certain terms of the facility. Here's the bottom line from United's perspective: "Absent near immediate access to the DIP Facilities, the Debtors will not survive. Based on their current business plan, the Debtors will need to begin accessing the DIP Facilities almost immediately upon their availability. Any delay in the granting of this Motion would be devastating. The Debtors' businesses are service
businesses, and their most valuable assets are their customers. It is crucial to the Debtors' reorganization efforts that the public maintain confidence in the Debtors' present and future ability to provide reliable services. Because of the Debtors'
commencement of these Chapter 11 cases, the Debtors must be allowed to take immediate, active steps to preserve their customer base and essential relationships with, among others, the traveling public, tour operators, cargo and travel agents, other airlines with which they have agreements, fuel suppliers and
other essential trade creditors, and certain other business entities. The Debtors must be allowed to continue their operations in a manner unaffected by the commencement of these Chapter 11 cases, for even a short disruption will
generate substantial uncertainty and seriously impair the Debtors' ability to successfully reorganize. ( this is why United MUST win this case aginst the a/c creditors)
Ual's combative stance towards vendors with whom it has conducted business , poses a critical risk for its survival.
WorldTraveler
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You are right, N by NW. Ultimately, the creditors will get what they want or pull their assets from UAL. They cannot be forced to permanently lease assets to a company at sub-optimal rates. And if the creditors feel their assets are threatened, they will be much less likely to keep the house of cards from crumbling.
Standard and Poor’s has already said that similar financing instruments at other airlines as those used by UAL will be affected if UAL prevails. Given that LCCs are adding the greatest amount of capacity and will need the greatest access to the capital markets in the near future, this could hurt them more than legacy carriers. Ironically, if consolidation begins to occur among legacy carriers, the lenders will find it even harder to start enforcing enhanced restrictions and higher rates. So far, lease companies holding legacy carrier assets have faired relatively well in UA and US’ bankruptcy. Acceleration of the downturn could put more of those assets at risk. The international market and the LCCs simply cannot absorb the amount of capacity that the failure of one or two US legacy carriers could throw on the market.
Standard and Poor’s has already said that similar financing instruments at other airlines as those used by UAL will be affected if UAL prevails. Given that LCCs are adding the greatest amount of capacity and will need the greatest access to the capital markets in the near future, this could hurt them more than legacy carriers. Ironically, if consolidation begins to occur among legacy carriers, the lenders will find it even harder to start enforcing enhanced restrictions and higher rates. So far, lease companies holding legacy carrier assets have faired relatively well in UA and US’ bankruptcy. Acceleration of the downturn could put more of those assets at risk. The international market and the LCCs simply cannot absorb the amount of capacity that the failure of one or two US legacy carriers could throw on the market.
WorldTraveler said:
1) Any credit rating downgrade would hurt WN and B6 least because of their superior credit ratings -- they would have more access to capital and at better rates than the legacies, even if higher than now.
2) Complete fleets of sister ships are sometimes easier to place than individual aircraft. A legacy failure would soften used aircraft values, but given growth around the world, I wouldn't see the newer Stage III fleets staying idle for long. JT8D era aircraft an the like would be another matter.
WorldTraveler
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1. Don't disagree with you; however, any users of those types of financing instruments will be affected. If WN starts from a better base, they will not be as impacted as DL or CO which are more "fragile."
2. Agree but how many airlines anywhere are ready to take a fleet of up to a couple hundred A320 series aircraft which is what UA and/or US could put on the market along w/ significant numbers of other fleets. Any airplane can be placed....I just read that DL sold 6 of its L1011s to a middle east airline.
The most likely scenario for a large fleet placement would be if one of the other US legacies decided they could accelerate fleet renewal by taking on some of the weaker airlines new fleets at good rates. However, if they are willing to go that far, they might as well buy the company since the aircraft represent most of the debt at the weak airlines anyway. Slots and international route authorities represent some collateral but aircraft represent the most. Consolidation could occur while the surviving carrier gets a newer fleet (since the combined fleet probably doesn't need to be as large as the sum of the two separate fleets due to elimination of redundancies) while reducing costs through lower leases and newer aircraft which are less expensive to maintain. The LCCs have made their aircraft purchase commitments but many of the legacies have considerable ability to replace older aircraft with newer models.
2. Agree but how many airlines anywhere are ready to take a fleet of up to a couple hundred A320 series aircraft which is what UA and/or US could put on the market along w/ significant numbers of other fleets. Any airplane can be placed....I just read that DL sold 6 of its L1011s to a middle east airline.
The most likely scenario for a large fleet placement would be if one of the other US legacies decided they could accelerate fleet renewal by taking on some of the weaker airlines new fleets at good rates. However, if they are willing to go that far, they might as well buy the company since the aircraft represent most of the debt at the weak airlines anyway. Slots and international route authorities represent some collateral but aircraft represent the most. Consolidation could occur while the surviving carrier gets a newer fleet (since the combined fleet probably doesn't need to be as large as the sum of the two separate fleets due to elimination of redundancies) while reducing costs through lower leases and newer aircraft which are less expensive to maintain. The LCCs have made their aircraft purchase commitments but many of the legacies have considerable ability to replace older aircraft with newer models.
North by Northwest - Since when does UA have the right to use aircraft without paying for the use of them?
UA has the right under bk to turn leased aircraft back or continue to use them and pay rental payments. Customers are UA's source of income, but the aircraft and other resourses are the tools needed to receive that income.
UA must pay for the use of those resourses as they are generating revenue for the company. When a company starts going after creditors that were paid 90 days before bk, it is usually a situation where a company has become insolvent and is in liquidity.
UA has the right under bk to turn leased aircraft back or continue to use them and pay rental payments. Customers are UA's source of income, but the aircraft and other resourses are the tools needed to receive that income.
UA must pay for the use of those resourses as they are generating revenue for the company. When a company starts going after creditors that were paid 90 days before bk, it is usually a situation where a company has become insolvent and is in liquidity.
