[BR][SPAN style=FONT-SIZE: 10pt; FONT-FAMILY: Verdana][FONT face=Times New Roman size=3][STRONG]Mechanics give UAL cold shoulder[BR][/STRONG][/FONT][FONT face=Times New Roman size=3][BR]CHICAGO (Crains Business News) - Labor concession talks between United Airlines and its mechanics are bogging down. Negotiators for the machinists union broke off face-to-face talks three weeks ago and there have been no bargaining sessions since. [/FONT][BR][BR][FONT face=Times New Roman size=3]We walked away because of some disagreements, says Thomas Reardon, assistant general chairman of the International Assn. of Machinists and a member of the negotiating committee. [STRONG]We're not scheduled to go into talks.[/STRONG][/FONT][BR][BR][FONT face=Times New Roman size=3]Although the pilots union has tentatively agreed to a $2.2-billion cut in pay, mechanics are considered the linchpin of United's plan to obtain $5.8 billion in concessions from all employees in order to obtain a federal loan guarantee and avert bankruptcy. [/FONT][BR][BR][FONT face=Times New Roman size=3]Meanwhile, United's flight attendants union called a meeting of its leaders late last week as talks with the company intensified. A spokesman for UAL Corp., United's Elk Grove Township-based parent, says the parties are in frequent telephone contact.[/FONT][BR][BR][FONT face=Times New Roman size=3][STRONG]Analysts doubt United's ability to dodge disaster[/STRONG][/FONT][BR][BR][FONT face=Times New Roman size=3]DENVER (Denver Post) - Sunday, November 10, 2002 - Wall Street remains skeptical about United Airlines' ability to avoid Chapter 11, despite recent moves by the carrier to defuse its financial crisis, including the announcement late Friday that it plans to lay off an additional 2,700 flight attendants.[/FONT][BR][BR][FONT face=Times New Roman size=3]Few analysts believe United can steer clear of bankruptcy, and investors drove down UAL Corp.'s stock 26 percent Thursday and Friday after pushing it up 73 percent earlier in the week.[BR][BR]The road to bankruptcy is paved with good intentions, UBS Warburg analyst Sam Buttrick said Friday in response to United's positive developments.[BR][BR]Indeed, United's situation is grim: Its daily losses exceed $7 million, it must pay $445 million in debt and other obligations by mid-December from dwindling cash reserves, and government approval of a $1.8 billion loan guarantee is hardly assured.[BR][BR]Meanwhile, pay-cut talks with flight attendants and ground workers had not yielded agreements as of late Friday.[BR][BR]Yet during the past 10 days, the airline reached a tentative agreement with its pilots that saves $2.2 billion and deferred by up to five years $500 million in impending debt payments.[BR][BR]The deferral gives United breathing room as it negotiates a $5.8 billion, 5 1/2-year pay-cut package with the remainder of its unionized employees and works with the Air Transportation Stabilization Board to secure the loan guarantee it needs to avoid default.[BR][BR]United, which flies nearly two-thirds of Denver's air travelers and employs 7,800 here, also has identified between $1.4 billion and $1.8 billion in annual non-labor cost cuts and revenue enhancements.[BR][BR]Company officials say while United isn't out of trouble yet, it's making significant strides.[BR][BR]The pieces are starting to come together. What's happening is that the things we said we would do are in fact getting done, said Chris Bowers, United's senior vice president for marketing, sales and reservations.[BR][BR]In all my time with the company, we've never been this singularly focused as a group. We're pulling together as a unit, the 29-year United veteran said.[BR][BR]Stock analysts, however, who make a living assessing companies' financial health, aren't so sure. Just one analyst upgraded UAL's stock last week, noting that the probability of bankruptcy in the short term is sharply reduced. The remainder maintained their negative or neutral ratings.[BR][BR]Our bias remains that UAL will be unable to reach a restructuring plan as required by the ATSB to obtain government-guaranteed loans before being forced into bankruptcy, Credit Suisse First Boston analyst Jim Higgins said in a note to investors Thursday.[BR][BR]Though United officials say their talks with the ATSB are progressing smoothly, questions from the panel to the airline on Wednesday sparked doubts. In a letter, the ATSB requested additional information and explanations for six areas, including labor costs, revenue projections and capital spending.[BR][BR]The ATSB - facing a letter-writing campaign from United employees, lobbying from the company's customers and suppliers and pressure from elected officials - also sent the letter to the media, something it hasn't done in past communications with airlines.[BR][BR]Buttrick said the letter indicates the board doesn't consider United's new business plan sufficient.[BR][BR]We believe that the loan board will reasonably find that UAL's current proposed savings from labor and other sources fall short, he wrote in a report Friday.[BR][BR]Added Higgins: We see the ATSB's request as underscoring our view that UAL's headline cost savings and revenue-enhancing initiatives have debatable value.[BR][BR]Higgins said some of the savings in United's plan phase in over time while others are merely adjustments for lowered capacity. As such, the plan does not bring down United's unit costs, or how much the airline pays to fly each available seat 1 mile, he said.[BR][BR]The board is looking closely at unit cost as it doles out loan guarantees, analysts say, because it is an indicator of an airline's ability to earn profits. United's unit cost is more than 11 cents, while that of low-cost, profitable carriers like Southwest Airlines is 7 or 8 cents.[BR][BR]United's Bowers said there was nothing alarming or surprising in the ATSB's letter. During meetings Tuesday, panel members told United officials they would follow up with questions.[BR][BR]We fully expected to hear back from them with questions, given the breadth of information we covered, he said.[BR][BR]Regardless of which way the ATSB is leaning, some airline watchers believe there simply isn't enough time for United to get everything done that it must to avoid defaulting on its loans.[BR][BR]The ATSB took four months to conditionally approve Denver- based Frontier Airlines' loan-guarantee application. US Airways received conditional approval of its guarantee in July but has yet to secure its loans. The company, however, is in bankruptcy and is protected from its creditors.[BR][BR]In the meantime, flight attendants and machinists still haven't reached agreements on their share of the cost-cutting plan. If and when they do, workers must vote on the proposals, a process that will take up to three weeks.[BR][BR]United faces a $375 million debt payment on Dec. 2 that it is unlikely to delay for more than a week or 10 days. On Dec. 15, it must pay machinist-represented workers $70 million in retroactive wages.[BR][BR]According to Higgins, the Dec. 2 payment will force United to default because it will push United's cash reserves below safe levels for a company its size.[BR][BR]United had $1.7 billion in available cash on Sept. 30. It is burning through $7 million to $10 million a day. That means that after the payments and without gaining access to additional loans, United would have between $700 million and $900 million in cash available on Dec. 2, just three weeks away.[BR][BR]Cash below $1 billion is considered bankruptcy level for the airline, which faces additional debt payments early next year, by which time its reserve may have dwindled to as low as $300 million.[BR][BR]United officials point out that the company has $3.4 billion in unen***bered assets, mainly aircraft. The airline could sell those planes and lease them back but hasn't said whether it will do that.[BR][BR]As the deadlines approach, there are signs that United's various groups, traditionally at odds, are working in a new spirit of unity.[BR][BR]Employees have sent 30,000 letters to the ATSB supporting United's loan-guarantee application. The airline is putting posters up in its hubs displaying that unity to customers, who have been barraged by news of labor strife and potential bankruptcy.[BR][BR]We are united in our commitment to restore the profitability of a great airline, reads the poster, signed by United chief executive Glenn Tilton and the heads of each of the airline's unions.[BR][BR]With a reduced cost structure and 80,000 dedicated employees, you can count on United to be a strong competitor in today's marketplace and into the future.[/FONT][/SPAN]
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