Sep 12, 2002
ov 24, 2002 (Chicago Tribune - Knight Ridder/Tribune Business News) -- United Airlines may have gained enough altitude in its bid to win a federal bailout that it now can look toward a smooth landing.
Last week, the Elk Grove Township-based carrier made significant progress with two of its key labor unions, the machinists and the pilots. The pilots approved an agreement to reduce pay and the machinists are scheduled to vote on its tentative agreement Wednesday.
Now a number of observers say United is on the verge of pulling together the pieces demanded by federal officials.
Just looking at the progress they’ve made, I would be very surprised if they did not get the federal loan guarantee, said Joel Denney, airline analyst for U.S. Bancorp Piper Jaffray in Minneapolis.
Still, it is unlikely the airline will receive a decision from the Air Transportation Stabilization Board in time to help it deal with a $375 million bond payment due Dec. 2, which could force the airline to invoke a clause that gives them a 10-day grace period for payment.
Others, however, suggested that the decision about the loan application by United, the world’s second largest airline with 83,000 employees, will boil down to a single item.
Do technical questions even matter or is United too big to allow to fail? asked Robert Mann, president of R.W. Mann & Company Inc., an airline and airline-employee consulting company.
That issue in part is what prompted the government to give a $250 million bailout in 1971 to Lockheed Corp.; a $1.5 billion bailout in 1978 to Chrysler Corp.; and a $4.5 billion bailout in 1984 of Continental Illinois National Bank, then the nation’s sixth-largest bank.
Curiously, only Lockheed, now known as Lockheed Martin Corp., is still around. Chrysler was acquired by Daimler-Benz AG, while a significantly smaller Continental was acquired in the 1990s by Bank of America.
DePaul University economist Joseph Schwieterman said United has marginally qualified [for the guarantee] and it gives them a shot at survival. But it certainly does not give them the momentum the stabilization board would have liked because the pay concessions are less ambitious than most of us expected.
Under the wage-cut agreements that have been announced, the airline’s employees will be giving up about $5.5 billion in pay over 5 1/2 years. As yet, United has been unable to reconcile the discrepancy between the $5.8 billion the unions agreed to provide and the estimated $5.5 billion employees say they are providing.
Meanwhile on Friday, the Illinois congressional delegation turned up the heat on the ATSB to approve a $2 billion loan sought by United. Of that amount, $1.8 billion would be federally guaranteed.
In a letter to the three-member ATSB board, signed by most members of the state’s delegation, they wrote we strongly urge you to live up to the mandate Congress gave you in creating [the board] by approving United Airlines’ application.
Reminding board members of the economic impact from the 2001 terrorist attacks on New York and Washington and the potential impact from a war in the Middle East, the delegation said the ATSB can prevent further economic upheaval by approving the loan.
Despite the increasingly favorable outlook for the loan guarantee, many experts suggested that the upcoming vote this week by the machinists could impede a decision by the ATSB’s three-member board. A decision by the federal board could be perceived as interfering with the vote.
But United’s employees, seeking to ensure they have done everything they could to secure approval of the guarantee, last week delivered 42,000 cards to the ATSB asking that the guarantee be approved, according to Joseph Tiberi, a spokesman for the International Association of Machinists and Aerospace Workers. The machinists represent 37,000 United employees.
Two weeks ago, the airline delivered 30,000 cards and letters to the federal board.
Despite agreeing that it appears the loan guarantee may be granted, Ray Neidl, airline analyst for Blaylock & Partners in New York, said he remains concerned that the plan merely defers the financial crisis to a later date.
That is an issue the board will have to resolve because United is proposing that it not be required to start repaying the loan until 2005.