- Thread Starter
- #46
United gains, but continues to taxi
Critics: Airline must do more to get federal help
DENVER (Post) - United Airlines has come a long way since it filed for bankruptcy protection six months ago.
But critics say it may not have come far enough to persuade the government to back hefty loans it will need to emerge from Chapter 11.
United officials say they are interested in reapplying for a federal loan guarantee to help the carrier exit from court protection in six to nine months.
If they do, they'll again face the Air Transportation Stabilization Board, a panel of three high-ranking bureaucrats who were deeply skeptical of United's previous attempt last year.
The board's sharply worded rejection of a $1.8 billion guarantee in December was the final blow that sent United into bankruptcy.
"The ATSB seemed to go out of its way to criticize United's business plan," said Henry Miller, chairman of Miller Buckfire Lewis Ying, a New York investment-banking firm specializing in corporate restructurings.
"This time around, in a less supportive political and economic environment, it will be even more essential for United to have a credible, realistic and achievable business plan," said Miller, who has advised airlines in six Chapter 11 cases.
Miller and others acknowledge that United has made great strides by slashing labor expenses by $2.5 billion.
The stabilization board was particularly critical of the company's failure to obtain those cost cuts outside of court.
But bankruptcy experts say United should secure a substantial private equity investment before it returns to the board. A show of confidence from an outside investor would help ease any remaining doubts the government may have about United's business plan, these observers say.
The stabilization board granted US Airways a $900 million loan guarantee to help it emerge from bankruptcy, which may place pressure on the government to accept United's application.
But US Airways had an equity partner, Retirement Systems of Alabama, which is buying a 37 percent stake in the airline for $240 million.
"If you go to the ATSB without a partner and they say no, that's a big blow. It's the second time in a row, and it could be the death knell for United," said William Brandt, a bankruptcy consultant and chief executive of Development Specialists Inc. in Chicago. "If you go in with a big-time equity investor, the loans can be made with the expectation of being repaid. You'll do better in front of the board."
United is the largest airline at Denver International Airport, where it handles about 60 percent of passenger traffic.
The company hasn't said when it might reapply for a loan guarantee or whether it would bring in an equity investor as part of a potential bid.
The company has said only that it has begun seeking financing for its eventual emergence from bankruptcy in six to nine months.
"We've had discussions with individuals and entities on both the debt and equity side," said United spokesman Jeff Green. "We haven't made any determinations."
Sources close to United say the company is trying to avoid giving up a large equity stake and is concentrating on obtaining other sources of financing, namely bank loans and other debt.
One reason is that United's creditors might prefer that their own eventual ownership in United not be diluted by a large, new investor. Companies like GE Capital, Boeing and Airbus could be willing to cut United special deals on aircraft payments to help the company minimize the need for outside money.
Another possible motive is that management and the board of directors may not want to give up control over United's fate. Investors who take large equity positions in bankrupt companies often want seats on the board and, sometimes, new management teams.
University of Chicago law professor and bankruptcy specialist Douglas Baird said he doesn't think chief executive Glenn Tilton is concerned with this.
"Let's say that a year from now United emerged with new money from an equity financier, and the upshot was that Tilton was gone. If I were Tilton, I'd be enormously pleased with myself. I'd have turned it around and left it healthy and intact," Baird said.
Loans, whether backed by the government or not, certainly come with fewer strings attached. But if United takes on too much new debt, it risks burdening itself with high interest payments once it emerges from Chapter 11, bankruptcy experts said.
Miller estimates United will need access to $2 billion to $3 billion to exit successfully. He said up to $1 billion of that should be equity to keep the company's debt load under control.
Regardless of which way it goes, United still faces a big challenge in the capital markets because it continues to lose money, others said. The company lost $375 million in April, during the height of travel concerns over the Iraq war and SARS.
Results are likely to improve in May and June, but not necessarily enough for United to meet tight financial-performance targets set by the banks whose loans are allowing the company to operate in bankruptcy.
The weak economy continues to take a toll on United's revenues, as does the uncertainty about its future.
United's financial targets require it to begin posting operating profits to reduce its massive cumulative loss since filing for court protection on Dec. 9.
Most observers say they believe United will be able to renegotiate the loan targets, but missing them would raise questions about the airline's long-term health.
The airline eventually will run out of cash if its operational losses don't stop, and many people are still waiting for a clear explanation of how and when that will happen.
"The big question, after the economic crisis is over, is whether or not a hub-and-spoke airline like United can make money," Baird said.
"They have to come up with a story about how things in the future will be different," Baird said. "If I ran a failing restaurant and asked you if you would like to be part-owner, your first question would be, 'Excuse me, but when are you going to stop losing money?"'
Those familiar with United's plans say its recovery strategy is based primarily on luring back business passengers to the airline's main operation at prices somewhere above the discount competition.
United officials recently have downplayed their vision for a low-cost division that would have flown 30 percent of the carrier's routes and competed head-on with Southwest and JetBlue.
The company has slashed $2.5 billion from its annual payroll and is negotiating to cut more than $500 million from its annual aircraft and airport costs.
The cost cuts are critical to United's survival, but huge challenges remain, Baird said.
"They've done everything they absolutely had to do to stay in business. United has done all the things it had to do to have a chance," Baird said. "That doesn't mean they're going to survive."
Critics: Airline must do more to get federal help
DENVER (Post) - United Airlines has come a long way since it filed for bankruptcy protection six months ago.
But critics say it may not have come far enough to persuade the government to back hefty loans it will need to emerge from Chapter 11.
United officials say they are interested in reapplying for a federal loan guarantee to help the carrier exit from court protection in six to nine months.
If they do, they'll again face the Air Transportation Stabilization Board, a panel of three high-ranking bureaucrats who were deeply skeptical of United's previous attempt last year.
The board's sharply worded rejection of a $1.8 billion guarantee in December was the final blow that sent United into bankruptcy.
"The ATSB seemed to go out of its way to criticize United's business plan," said Henry Miller, chairman of Miller Buckfire Lewis Ying, a New York investment-banking firm specializing in corporate restructurings.
"This time around, in a less supportive political and economic environment, it will be even more essential for United to have a credible, realistic and achievable business plan," said Miller, who has advised airlines in six Chapter 11 cases.
Miller and others acknowledge that United has made great strides by slashing labor expenses by $2.5 billion.
The stabilization board was particularly critical of the company's failure to obtain those cost cuts outside of court.
But bankruptcy experts say United should secure a substantial private equity investment before it returns to the board. A show of confidence from an outside investor would help ease any remaining doubts the government may have about United's business plan, these observers say.
The stabilization board granted US Airways a $900 million loan guarantee to help it emerge from bankruptcy, which may place pressure on the government to accept United's application.
But US Airways had an equity partner, Retirement Systems of Alabama, which is buying a 37 percent stake in the airline for $240 million.
"If you go to the ATSB without a partner and they say no, that's a big blow. It's the second time in a row, and it could be the death knell for United," said William Brandt, a bankruptcy consultant and chief executive of Development Specialists Inc. in Chicago. "If you go in with a big-time equity investor, the loans can be made with the expectation of being repaid. You'll do better in front of the board."
United is the largest airline at Denver International Airport, where it handles about 60 percent of passenger traffic.
The company hasn't said when it might reapply for a loan guarantee or whether it would bring in an equity investor as part of a potential bid.
The company has said only that it has begun seeking financing for its eventual emergence from bankruptcy in six to nine months.
"We've had discussions with individuals and entities on both the debt and equity side," said United spokesman Jeff Green. "We haven't made any determinations."
Sources close to United say the company is trying to avoid giving up a large equity stake and is concentrating on obtaining other sources of financing, namely bank loans and other debt.
One reason is that United's creditors might prefer that their own eventual ownership in United not be diluted by a large, new investor. Companies like GE Capital, Boeing and Airbus could be willing to cut United special deals on aircraft payments to help the company minimize the need for outside money.
Another possible motive is that management and the board of directors may not want to give up control over United's fate. Investors who take large equity positions in bankrupt companies often want seats on the board and, sometimes, new management teams.
University of Chicago law professor and bankruptcy specialist Douglas Baird said he doesn't think chief executive Glenn Tilton is concerned with this.
"Let's say that a year from now United emerged with new money from an equity financier, and the upshot was that Tilton was gone. If I were Tilton, I'd be enormously pleased with myself. I'd have turned it around and left it healthy and intact," Baird said.
Loans, whether backed by the government or not, certainly come with fewer strings attached. But if United takes on too much new debt, it risks burdening itself with high interest payments once it emerges from Chapter 11, bankruptcy experts said.
Miller estimates United will need access to $2 billion to $3 billion to exit successfully. He said up to $1 billion of that should be equity to keep the company's debt load under control.
Regardless of which way it goes, United still faces a big challenge in the capital markets because it continues to lose money, others said. The company lost $375 million in April, during the height of travel concerns over the Iraq war and SARS.
Results are likely to improve in May and June, but not necessarily enough for United to meet tight financial-performance targets set by the banks whose loans are allowing the company to operate in bankruptcy.
The weak economy continues to take a toll on United's revenues, as does the uncertainty about its future.
United's financial targets require it to begin posting operating profits to reduce its massive cumulative loss since filing for court protection on Dec. 9.
Most observers say they believe United will be able to renegotiate the loan targets, but missing them would raise questions about the airline's long-term health.
The airline eventually will run out of cash if its operational losses don't stop, and many people are still waiting for a clear explanation of how and when that will happen.
"The big question, after the economic crisis is over, is whether or not a hub-and-spoke airline like United can make money," Baird said.
"They have to come up with a story about how things in the future will be different," Baird said. "If I ran a failing restaurant and asked you if you would like to be part-owner, your first question would be, 'Excuse me, but when are you going to stop losing money?"'
Those familiar with United's plans say its recovery strategy is based primarily on luring back business passengers to the airline's main operation at prices somewhere above the discount competition.
United officials recently have downplayed their vision for a low-cost division that would have flown 30 percent of the carrier's routes and competed head-on with Southwest and JetBlue.
The company has slashed $2.5 billion from its annual payroll and is negotiating to cut more than $500 million from its annual aircraft and airport costs.
The cost cuts are critical to United's survival, but huge challenges remain, Baird said.
"They've done everything they absolutely had to do to stay in business. United has done all the things it had to do to have a chance," Baird said. "That doesn't mean they're going to survive."
