Stock Trading Halted

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Sep 16, 2002
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Reuters
United Airlines prepares for bankruptcy, stock halted
Thursday December 5, 10:31 am ET
By Kathy Fieweger
CHICAGO, Dec 5 (Reuters) - United Airlines was preparing for bankruptcy on Thursday after the U.S. government rejected its loan guarantee request, and some experts called it the best thing that could happen to a carrier hamstrung by difficult labor relations and huge losses.
Shares of its parent, UAL Corp. (NYSE:UAL - News), opened 59 percent lower at $1.28 before trading in the stock was halted. Bond prices also sank on expectations that unsecured creditors will recover little of their money.
An army of bankers, lawyers and consultants were preparing documents for the No. 2 U.S. airline probably for weekend filing under Chapter 11 of the U.S. bankruptcy code, people familiar with the matter said.
The New York Stock Exchange said it was halting trading in the stock ahead of expected news. The airline said it had no plans to issue a news release.
Union leaders and employees still held out hope that United could submit a new application for a loan guarantee to the U.S. government board that rejected the bid on Wednesday.
Employees own 55 percent of the company under a 1994 plan designed to foster labor harmony. The plan is blamed for among the highest costs in the industry.
The U.S. airline industry has been ravaged by its worst financial crisis since the Sept. 11, 2001, hijack attacks on New York and Washington. United posted the biggest annual loss in airline history in 2001, at over $2 billion, and is bleeding some $8 million a day.
U.S. Airways (Nasdaq:UAWGQ - News), based in Arlington, Virginia, filed for bankruptcy in August.
FLIGHTS AS NORMAL
At the United terminal of O'Hare airport in Chicago, one of the airline's key hubs, travel was normal for passengers although some were considering switching to other carriers and their concern seemed to be the fate of frequent flier miles.
We're all worried about losing our miles. Do you want to put additional miles on an airline that might not make it? Probably more people have frequent flier miles than stock, said Alison Baldwin, 32, an attorney in Chicago, who was traveling to Dallas.
Industry experts said even if United were to finally win federal backing for most of a $2 billion loan as it requested, the money would almost certainly be used to help the airline emerge from bankruptcy.
We think that a bankruptcg filing is probably the best thing that could happen to UAL Corp. since hopefully it will allow the company to get out of its current flawed structure of majority ownership by employees, said Deutsche Bank airline analyst Susan Donofrio.
Sources familiar with the matter said the airline, based in Elk Grove Village, Illinois, was lining up its ducks by finalizing special bankruptcy financing needed to operate in Chapter 11. The size of the debtor-in-possession financing is thought to be around $1.5 billion.
Three big banks and the financing arm of GE (NYSE:GE - News) Capital were going over revised data from United, sources said. The banks were J.P. Morgan Chase (NYSE:JPM - News), Citibank (NYSE:C - News) and Bank One (NYSE:ONE - News), which issues the lucrative United Airlines/Mileage Plus frequent flyer credit cards.
But some of the same issues that caused the government to reject United's financial recovery plan and proposal for backing of $1.8 billion of a $2 billion loan were worrying the banks.
BLUNT WORDS
Those issues include, for example, how much United's assets are really worth in an historic aviation dowturn, how much revenue can really be expected and how unions will react to demands for even bigger concessions.
In a letter to Chief Financial Officer Jake Brace, the Air Transportation Stabilization Board said the United plan does not position the company to meet the challenges of the current airline industry environment and to achieve long-term financial stability.
The data United submits to banks for bankruptcy financing will be different from that given to the government agency, as that recovery plan was based on an out-of-court recovery.
The federal agency noted that even with $5.2 billion in labor cost savings over 5-1/2 years outlined by United as part of its proposal, United would remain among the highest cost carriers in the industry.
Some experts said more realistic cost concessions should have been in line with the $9 billion outlined by former Chief Executive Jack Creighton.
In fact, labor will be the core issue that will determine the fate of United in Chapter 11, people familiar with the situation said.
Unlike US Airways Group (OTC BB:UAWGQ.OB - News), which told its unions its plans for bankruptcy even before filing, United has yet to discuss such a scenario with its big labor groups.
Pilots staged a slowdown in the summer of 2000 as they negotiated a new contract and ended up with a deal that made them by far the highest paid in the industry.
Those rates will certainly be coming down, analysts said.
Despite the rigors of bankruptcy, we expect industry dividends in the form of lower labor, borrowing and aircraft costs, said J.P. Morgan analyst Jamie Baker.
Bill Oliver, a consultant with the Boyd Group, said his firm completed a United analysis a month ago and even with the government loan saw it running out of cash in early 2004.
An army of bankers, lawyers and consultants were preparing documents for the No. 2 U.S. airline probably for weekend filing under Chapter 11 of the U.S. bankruptcy code, people familiar with the matter said.
The New York Stock Exchange said it was halting trading in the stock ahead of expected news. The airline said it had no plans to issue a news release.
Union leaders and employees still held out hope that United could submit a new application for a loan guarantee to the U.S. government board that rejected the bid on Wednesday.
Employees own 55 percent of the company under a 1994 plan designed to foster labor harmony. The plan is blamed for among the highest costs in the industry.
The U.S. airline industry has been ravaged by its worst financial crisis since the Sept. 11, 2001, hijack attacks on New York and Washington. United posted the biggest annual loss in airline history in 2001, at
over $2 billion, and is bleeding some $8
 
In the one funny thing to come out of all this, a guy who shorted UAL stock posted this quote from "Trading Places" on their Yahoo! board just after trading was halted:

"TURN THOSE MACHINES BACK ON!!! Where the hell is Beeks???"



 
In the one funny thing to come out of all this, a guy who shorted UAL stock posted this quote from "Trading Places" on their Yahoo! board just after trading was halted:

"TURN THOSE MACHINES BACK ON!!! Where the hell is Beeks???"