DAVID FIELD / RIO DE JANEIRO
The airline will soon learn whether it has escaped Chapter 11 bankruptcy protection
United Airlines should know this week if it has successfully dodged Chapter 11 bankruptcy protection. A $375 million loan payment is due this week, and a decision from the Air Transportation Stabilization Board on the federal guarantees for a $1.9 billion loan package is expected within two weeks. Speaking at a Star Alliance board meeting in Rio de Janeiro last month, United chief executive Glenn Tilton said "the first week in December is very important for us".
United is likely to post a full-year loss of between $2.5 billion and $2.7 billion, but its current cash burn rate is $5-7 million a day due to an "uptick" in revenue in late October. United's fourth quarter daily cash burn rate had been estimated at more than $7 million.
But some positive signs are emerging. Tilton says the "disinclination phenomenon" that has crimped business travel is weakening and some regions are performing slightly better then predicted. United's home territory of the US Midwest has performed "quite well" recently, and its routes to and from Chicago O'Hare have been "better than previously forecast".
Tilton says United's cash balance "has recently grown to exceed forecasts" and is now "well in excess" of $1 billion. As of 30 September, United's cash balance stood at $2 billion, including $344 million in restricted cash. He says a balance that reached an unspecified "inflection point" would likely lead to filing for Chapter 11 bankruptcy.
Tilton estimates the carrier will be cash-positive in 2003 and post a net profit in the first half of 2005.
United now has all of its major labour groups signed up for cost savings, although final ratification by the various memberships is needed. The $1.5 billion in concessions granted by the machinists adds to $2.2 billion agreed by pilots, $1.3 billion from salaried and management workers, $412 million from flight attendants and an unknown but smaller amount from flight controllers and meteorologists, for a $5.4 billion package. JP Morgan's Jamie Baker questioned the estimation, saying it was "short by several hundred million dollars".
In August, United said it needed labour concessions of $9 billion over six years, but the two biggest unions balked and a coalition later produced a proposal of $5.8 billion over a slightly longer time.
United is in talks with aircraft lenders to restructure lease payments out of the bankruptcy court. A group of global banks is working on a refinancing plan for about $7 billion in leases. This could yield up to $150 million for the airline.
Talks are being held with up to five debtor-in-possession (DIP) financiers for $2 billion in financing if United decides to file for Chapter 11 protection. According to Tilton, United had more than $3 billion in unencumbered aircraft assets that could secure DIP backing at the end of the third quarter. It also has routes rights to London Heathrow and across the Pacific, most acquired from the defunct Pan Am.
Tilton says discussions are being held with Star Alliance members over ways they could provide aid. Tilton says he has "some commitment" from unnamed Star airlines to supply, back or arrange as much as $200 million in loans. Lufthansa, which recently increased its transatlantic co-operation with United in a revision that could bring as much as $90 million more to United, is considering other ways to aid the airline, Lufthansa chairman and chief executive Jurgen Weber says.
Air Canada chief executive Robert Milton says other Star members are contemplating ways to help United.
David Field is Americas editor of Flight International's sister magazine Airline Business
Source: Flight International
