UAL Faces Delay in Chapter 11 Exit

[atlmd80]

I do not think I agree with You on the rubber stamp of the extension of the POR deadline. I do not remember the exact dates, but I think the Company went to the Judge approx. 1 month ago asking for a multiple month extention(again I do not remember the dates) to the POR deadline. I believe the Judge gave until the first week of April-a 30 day extension. In that ruling I think He said He would review that decision on a month to month basis. I do not know the answers to any of those questions, I will leave that to someone else , but I do think they are all related.

 

[funguy2]

When would now be a good time for US Airways to terminate its alliance with United and seek an agreement with another carrier?

Respectfully,

USA320Pilot

How quickly the pendulum swings? Holy Cow!

First off, everyone on this board has been trying to tell you for YEARS that not only does the UCT/ICT/merger between UAL and USAir not make sense, it would be a financial disaster. It looks like finally, you agree. Thank you for ever so subtly letting us know.

Second, Why cancel the code-share. It costs almost nothing, yet presumably creates revenue. All of the costs to set up (i.e. res systems compatability, etc) are already sunk.

Third, if by some miracle, UAL does stop operating before USAirways, why would US Airways want to be out of Star... If, by that miracle, UAL stops operating, and US Airways continues to operate, why would US Airways pass at the opportunity to be the main USA carrier of the Star Alliance?

Fourth, what happened to your theory that Bronner will fund asset purchases from UAL for US Airways growth? Wouldn't being UAL's partner put US Airways first in line for those assets, such that UAL can keep them in the UAL fold? (Similar to US Airways selling Express carriers to Mesa in order to keep the US Airways Express feed.) Why throw that away? While I don't buy this theory, you have argued this adamantly for at least a year (since RSA/bankruptcy tie-up).

USA320Pilot, you've lost me on this one. I can't even imagine your logic. Please help me out and explain where this even came from.

 

[767jetz]

I just don't understand all the doom and gloom caused by UA bumping their target date by a couple of months. It was said in the begining that we would stay put in CH11 as long as it takes to restructure properly and avoid a second or third trip to the courts (ala: Continental, TWA, and perhaps USAirways).

When the last extension of UA's exclusivity to file a POR was granted, the judge said he would consider it on a month to month basis. His reasoning was that maybe UA will need the time, maybe not. He obviously wants UA to stay in CH11 long enough, but not a minute longer than necessary.

A few observations...

If UA's situation was so dire, wouldn't the judge want to start hearing competing POR's? Why grant UA exclusivity rights? The reason is that he knows UA is very close to tying up the final lose ends, and needs a little more time finish the process.

If ATSB loan application is so doomed, why hasn't Tilton approached the equity investors that all wanted a piece of UA a year and a half ago? Why stay with legitimate lenders like the banks?

Has anyone else been following the progress of Congress in finalizing the pension reform bill? They haven't exactly been rushing to get it done. Everyone admits that the pension liability is big part of the puzzle. Doesn't it make sense that UA wants that resolved before submitting the final POR?

We all know what happens when you rush the BK process just to "get out of bankruptcy." All one needs to do is look at USAirways as an example of what not to do. IMO certain USAir employees/supporters want UA to rush out with our pants down, because they feel their future hangs on what does or doesn't happen to UA. Perhaps a certain captain is annoyed because he feels that his career is being "held hostage" by UA, and is frustrated with our slow, careful, and methodical approach. (So sorry!)

I suggest everyone take a deep breath and just chill out. Enjoy your summer and wait to see what happens...

 

[Just Plane Crazy]

USA320Pilot

You must not just dislike UA yo must hate them. What are you so affraid off?

funguy2

I have to applaud your logic. It looks like you are one of the few to see the reason for USair to stay with UA and STAR. With any other alliance USAir would just be a small number. Satying with Star they are the #2 in the US and in the worst case assumption UA will make its last flight they will be the #1 and they would go from 0 - 60 in less than 1 second!!!!!!!!!!!!


As I have mentioned in a seperate thread, there is always the option that UA is working behind the curtins with our goverment to ease on the ownership rules. You only hear about it in regard to DHL but it would do UA a lot of good. LH and SQ would be more than happy to take a stake in UA and get some of their management over here and rebuild UA into a strong airline. Maybe some Unions won't like the result but that is a different subject.

The other scenari could be UA files for Chapter 7 and a seperate investment group will by the name, certificate, routes and some other assets and will reopen under "United Air" and every one has to apply for a job. No Union contract, no liability and for the PAX it will just be like they have changed the name on the door. How does some signs at Restaurants say it "Under New Ownership".

 

[Cosmo]

Forgive my coming into this discussion somewhat late, but I'm still trying to understand what all the "doom and gloom" is about United's current situation.

The New York Times article that USA320Pilot referred to at the start of this thread was IMHO not nearly as negative as some posters have implied. The article raised two main issues: the ATSB loan guarantee and United's date of emergence from Chapter 11.

Regarding the first issue, I found the following quote to be most pertinent:

Now, the loan board is considering asking United to seek about $100 million less, or around $1.5 billion, and turn to private lenders for $500 million, people close to the discussions said. The board has not yet made such a request formally, they said.

Representatives of J. P. Morgan Chase and Citigroup met yesterday with the board's staff to review the application - the first time United's bankers and the government had met to discuss United's second attempt to get federal loans. Previous meetings had been between United officials and the board's staff.

As I read this, the ATSB is asking United to reduce the guaranteed portion of its loan by $100 million, from $1.6 billion to $1.5 billion, with the non-guaranteed portion growing by that same $100 million. Why is it so hard to believe that the two banks would not accept that, or at a minimum bring in another bank to spread the risk a bit? Remember, folks, these are "major league" negotiations, and the banks wouldn't be talking directly to the ATSB if they didn't think there was a reasonable way to resolve this request. Moreover, the ATSB probably wouldn't be wasting its time by talking to the banks if the decision had already been made that the loan guarantee was going to be denied.

And regarding the second issue, United has consistently said that, while it hoped to emerge by June 30, the carrier would nevertheless remain in Chapter 11 as long as it took to get all of the benefits available to it. This is especially true for some of United's remaining hurdles, such as pension funding and the guaranteed loan, since the timing of the Congressional pension legislation and the ATSB loan decision, respectively, are out of the carrier's hands. So while this delay is unfortunate and certainly can't be considered "good news", it's not an earth-shaking disaster, either.

IMHO, this news has been blown far out of proportion by a few posters, including the one that started this thread.

 

[Bear96]

A year ago I would have agreed with you wholeheartedly. However, I'm afraid that today, the demise of a major--UA, U, or even AA--would not necessarily result in a return of rational (from the airlines' viewpoint) fares. I fear that such an event would result in a ramping up of service by one or more of the LCCs to the suddenly underserved destinations.

Even though AA has almost 6,000 of us f/a's on furlough and a host of pilots available for callback, corporations the size of AMR have not historically been capable of the flexibility needed to react quickly to events. For AA to grab any of UA's international flying, the following would have to occur...
1. Determine what routes they want to serve and how much service to provide.
2. Determine how many flight attendants and cockpit crews would be needed to support the service.
{Already I see weeks of committee and sub-committee meetings ahead. <_< }
3. They would have to extend proffers for the International bases involved. I think that under the CBA, proffers must be open for some minimum period of time.
4. Once the proffers were awarded (which more than likely would involve some flight attendants who were already International transferring to a more desirable base which means zero gain to the total corps), you have to train those flight attendants coming from domestic.
5. Recall a/c from the desert or lease/buy additional a/c.
6. I'm sure there is something I've omitted, but I'm only a junior {furloughed} flight attendant; so, I don't really have a total grasp of the "big picture."

I think someone else, probably one or more LCCs, would step in to fill the void. And, I don't think any of them would risk alienating their customer base by jacking up fares to what the majors had historically charged.

I think you are right about the LCCs jumping in to fill the void.

However I think you are incorrect about how the majors would respond should UA shut down tomorrow. Do you really think AA, DL, CO, etc., have not already formulated a plan in case, say, UA's NRT and Pacific routes (which AA would kill for) or LHR rights (which CO and DL would kill for) come on the market tomorrow?

I agree with your assessment in that two years ago I too thought, unfortunately, one of the majors needs to disappear to right the balance in the industry. Now however I am not so sure. Not only are the LCCs expanding aggressively, but even in the post-9/11 world we have seen examples of the majors being unable to control their greed and flood a market with even more excess capacity in an effort to grab the holy grail of "market share" should they perceive an opportunity opening up. For example, we saw that in the spring of 2003 when UA announced a ramp-up of ORD service. Should a hole open up in a lucrative market if an airline shuts down, I would expect to see the same behavior.

Airline management knows a major problem is too much capacity, but they just can't seem to stay disciplined enough to actually do anything to solve the problem.

 

[Ukridge]

IMHO, this news has been blown far out of proportion by a few posters, including the one that started this thread.

Indeed Cosmo. That is why I opined that the intent of the original poster was and is not, to foster discussion but rather to not only spread the gloom, but to delight in it. I will steer well clear of attacking the "messanger," flawed though that vessel may be, and maintain that the language surrounding those posts readily reveals that the linked news story is merely the vehicle or launch board for an extracurricular attack on United - very much as a jazz man can take a note and improvise for 20 minutes. If however, the surrounding language were devoid of apocalyptic profferings, we all would be more inclined to weigh it on its merits.
Cheers

 

[USA320Pilot]

UAL Faces Delay in Chapter 11 Exit

United Air's Parent Awaits U.S. Decision on Big Loan and Passage of Pension Bill

By Susan Carey, The Wall Street Journal

NEW YORK (WSJ) - After running smoothly for 15 months, the bankruptcy proceedings of United Airlines parent UAL Corp. have encountered turbulence that is setting back the company's schedule for emerging from court protection by June 30, according to people familiar with the matter.

Lawyers for the nation's No. 2 airline are expected to tell U.S. Bankruptcy Court Judge Eugene Wedoff at a hearing tomorrow in Chicago that UAL won't be able to step out of Chapter 11 until later in the summer. The carrier also is expected to ask the judge to extend for 30 or 60 days UAL's right to field a reorganization plan without competition from other groups, said people with knowledge of the case. Currently, that period of exclusivity ends April 8, after which creditors ostensibly could introduce their own plan to reorganize the company.

UAL appears to be hampered by some factors beyond its control. The company is awaiting a decision from the federal government on its application for $1.6 billion in loan guarantees, and for legislation pending in Congress that would ease the burden of future pension obligations on many companies. The airline also must contend with a lawsuit brought by one of its unions, at a time when the aviation industry is facing fresh setbacks from renewed terrorism fears and higher fuel costs.

Staying under court protection longer may help UAL wring further savings from its cost structure and fine-tune its turnaround strategy, though being in bankruptcy eats up millions of dollars a month in professional fees. But the delay also could try the patience of its creditors, who are starting to jostle over who will get what when the company reorganizes and issues fresh equity. So far, there haven't been any rumblings that the creditors committee is lining up financing and thinking about proposing a rival reorganization plan, people familiar with the matter say, but that could change if UAL lingers too long in bankruptcy court. The committee's lead attorney declined to comment.

When the company entered Chapter 11 in December 2002, it said it expected to emerge in 18 months. The deal it reached for a $2 billion exit loan from J.P. Morgan Chase & Co. and Citigroup Inc. expires June 30, as does the airline's existing debtor-in-possession financing. Talks are under way to extend both financings, knowledgeable people said, and to amend the terms of the latter to United's benefit.

But the company still has several issues outstanding that must be resolved before it can file a plan of reorganization and seek creditor approval. At least two of those issues are out of UAL's control -- the timing and content of the federal legislation that would help United and other companies deal with their underfunded pension plans; and the decision by the government on whether to grant UAL the $1.6 billion in loan guarantees to back the bulk of the J.P. Morgan/Citigroup exit loan.

It doesn't help that the industry's nascent recovery has lost steam amid new worries about terrorism, high fuel prices and excess capacity. That could make it tougher for UAL to meet monthly financial covenants set by the lenders that are providing it with the interim bankruptcy loan. People familiar with the company's finances said United is concerned that it might not meet its May hurdle, which will require positive earnings, as measured before interest, taxes, depreciation, amortization and aircraft rents, for the past 12 months. In May of last year, UAL received $300 million in a one-time government grant related to the war in Iraq, which will skew the measurement this year.

UAL's application for the loan guarantees remains before the Air Transportation Stabilization Board, a federal panel created after the 2001 terrorist attacks to help airlines that lacked access to capital. United's initial request was rejected in late 2002, plunging the company into Chapter 11. But the board left the door open for a revised request, which United filed three months ago.

The panel earlier expressed concern about UAL's big pension obligations, and this time wants to know how the company intends to deal with them. The airline is hoping legislation currently before Congress will be enacted in the next month or so. The law would help UAL put off some pension obligations for two years, improving its cash flow in the critical first years after it steps out of Chapter 11. Until the new law passes and it gets clarity on the pension issue, UAL doesn't expect to get an answer from the loan panel, which also has no timetable.

Meanwhile, United creditors are upset about a plan to restructure the financing of 175 jets. United has been using Chapter 11 to redo its aircraft financings and lease terms, marking down the rates to depressed levels and rejecting planes it no longer wants. It hopes the process will yield savings of about $900 million a year.

But a big part of that restructuring involves a group of aircraft investors represented by Chicago law firm Chapman & Cutler, and creditors believe this group is wielding excessive influence. Creditors contend that UAL is agreeing to less-than-ideal terms. They also dislike UAL's plan to give the Chapman group equity in the reorganized airline, reducing the amount available to other creditors, according to people close to the matter. The lawyer leading the Chapman group didn't return calls.

This matter isn't expected to come before Judge Wedoff until at least April.

Another battle involves the Association of Flight Attendants, which filed suit this year after UAL announced that it wants to shift some of the costs of medical benefits to its 35,000 U.S. retirees, either through negotiations or by asking Judge Wedoff to impose the changes on the group. The union alleged UAL enticed more than 2,000 attendants to take early retirement last summer to keep their medical benefits intact, when the airline actually was planning to seek modifications to those benefits.

United has denied the union's allegations. But Judge Wedoff appointed an independent examiner to determine whether United misled its flight attendants about the likely effect of retirement. The examiner is scheduled to submit his findings to the court tomorrow.

 

[767jetz]

The panel earlier expressed concern about UAL's big pension obligations, and this time wants to know how the company intends to deal with them. The airline is hoping legislation currently before Congress will be enacted in the next month or so. The law would help UAL put off some pension obligations for two years, improving its cash flow in the critical first years after it steps out of Chapter 11. Until the new law passes and it gets clarity on the pension issue, UAL doesn't expect to get an answer from the loan panel, which also has no timetable.

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Another battle involves the Association of Flight Attendants...

This article really doesn't reveal anything we don't already know, so I don't really see the point.

I will point to 2 things though:

First, as I said, the pension issue is the biggest piece of the puzzle still waiting for a resolution. Until Congress finishes arguing over the final version, which is expected to pass without a veto, and which will probably come in the next few weeks, don't expect to hear anything from the ATSB.

Second, in reference to the law suit, the ruling has already been issued against the AFA and in favor of the company, so this issue is moot.

Looks like the writer of this article is not really on top of current events.

 

[ClueByFour]

Edited. It's almost pointless to try to outspin the grand wizard of spinning.

 

[mweiss]

Or, perhaps I am merely recognizing a gleeful outpouring of Shadenfreude encased in an awkward verbal construct?

That has got to be the best sentence I've ever read on any aviation board. My hat is off to you, sir!

 

[mweiss]

Sorry, but what's deragotory about saying one is wrong.

If we did that, we would have about five members.

True enough. But you gotta admit, a post that consists of nothing but "you're wrong" in response to a post that contained at least five assertions is incomprehensible at best.

 

[ClueByFour]

Clue:

With all due respect, you're wrong.

Regards,

USA320Pilot

Really? About what?

NW is not going to leave CO/DL for US--the alliance brings it more revenue that buying US would, and without the nasty labor integration and debt it would have to assume.

AA has learned from TWA.

CO and DL: see above.

Given the way Bronner has behaved thus far (threatening to liquidate during and after bankruptcy), I'd hazard to guess that if you actually asked the "upper crust" at CCY if the would rather have gotten commercial money instead of Alabubba money, the answer would be in unison for the former.

Finally, regaring Little Dave--exactly what has this man accomplished worthy of praise at US? A sprint thru bankruptcy that did not address the structural problems with the airline? 44 different revisions of the "Plan?" (all complete with cute names) Whipsawing labor groups (notably ALPA) with more success than anyone since Lorenzo?

I'm not wrong on any of this. My judgement is not clouded by secret desires to see United fail, widebody envy, or both.

 

[Borescope]

767jetz:

It is my understanding the Pittsburgh hub is most likely dead and the assets will be moved elsewhere, where other opportunities may soon appear.

Regards,

USA320Pilot

Maybe you guys should talk to CO or AA. In the case of CO they closed DEN for the greener pastures of GSO. That lasted about a year. And AA spent all that money in BNA only to dismantle it a few years later.

 

[savyinvestor]

By the way, doesn't pushing back UAL's emergence beyond June 30 throw off someones predicted UCT/ICT ? Seems there was something about that June 30 date. Most respectfully, Savy