United Snags $1b In Loans, Buys Time To Reorganize

[Fly]

Read it here!

United snags $1B in loans, buys time to reorganize
By Marilyn Adams, USA TODAY
United Airlines and three big lenders Wednesday finalized $1 billion in new bankruptcy financing that gives the giant airline another year to reorganize in Chapter 11 protection.
The new loan is designed to give United, in reorganization for 19 months, until June 2005 to cut more costs and revise its business plan, said Bill Repko, restructuring chief at J.P. Morgan Chase.

The loan package will be split among J.P. Morgan and Citigroup, United's existing lead lenders, and GE Commercial Finance. United is a significant customer of General Electric, which makes aircraft engines and finances aircraft.

 

[mweiss]

Sounds like the ATSB was right, then. UA was able to get the loans in the capital market.

 

[WorldTraveler]

A year is an eternity in the airline business. 2004-2005 will probably be the most transformational year for the airline industry since 1978. UAL will be at a distinct disadvantage restructuring INSIDE bankruptcy while its competitors will all be restructuring OUTSIDE of bankruptcy with a great deal more flexibility.

The ATSB's decision will be long forgotten a year from now.

 

[FWAAA]

Sounds like the ATSB was right, then. UA was able to get the loans in the capital market.

Let's be fair here - this isn't a typical working capital loan (for which UAL was seeking the loan guarantees), it is essentially an amendment and extension to the original DIP financing. B)

 

[mweiss]

You're right...I missed the distinction.

 

[UnitedChicago]

UAL will be at a distinct disadvantage restructuring INSIDE bankruptcy while its competitors will all be restructuring OUTSIDE of bankruptcy with a great deal more flexibility.

Excuse me - exactly how will they be at a disadvantage? Do the carriers OUTSIDE bk court have the power of a judge to void contracts? Do they carriers OUTSIDE bk court have the continued ability to use the court process to refine their business plan? Do the carriers OUTSIDE bk have the power to reject leases and renegotiate aircraft leases? Sure carriers OUTSIDE bk will use the threat of bk to reduce costs - but they will never have the leverage and power the bk provides to get costs as low.

Just say it - you don't like United and you hope they fail. Well - you can not like United - but United certainly will not be failing.

I'm willing to trust that GE agrees.

 

[mweiss]

Do the carriers OUTSIDE bk court have the power of a judge to void contracts?

No, but the carriers inside don't get to enter into contracts. It's hardly a great advantage sitting in there.

 

[usfliboi]

I guess good but bad news. Another year in BK? I dont think this bodes well for anyone frankly.

 

[WorldTraveler]

It is a sad state of affairs when there are people who think that being in bankruptcy is an advantage. It is never an advantage and is a sign of a company that is fighting for its survival. When United’s archrival American has clearly put survival behind it and is now in a position to extract several pieces of UA’s hide, you should be worried. In addition to AA, airlines like NW, JetBlue, ATA, and Independence are in a very good position to make like very difficult for UA – and they will.

No I don’t have it out for United or its employees but I am continually dumbfounded (it is a compound word) that United employees do not understand the gravity of their position. I often wonder if UA leadership is any more aware of the odds against them. As has been well documented, only two large airlines have filed for bankruptcy since deregulation and are still alive today and both dramatically changed their business plan to do it. How long UA survives can certainly not be predicted today. However, there are carriers of both the legacy and LCC variety who have figured out how to survive in the new very turbulent airline environment and who are dead set at knocking UA out of the skies.

I’m not sure why UA employees have such a hard time hearing such a sober and unpopular message but failure to grasp it will certainly be recorded in the annals of airline history as one of the contributing factors in UAL’s demise.

 

[Fly]

Unfortunately, United isn't the last airline in the BK dance....looks like Delta is quickly about to enter the fray. (Of course World will sing an entirely different song that day)

 

[UnitedChicago]

WorldTraveler:

I'm not a United employee - I'm a loyal customer.

I don't necessarily agree with you that AA has put their problems behind them. They have pension issues as well. The only way United will emerge is to reduce their costs further. I have every reason to believe - as do many many analysts - that this will occur. Mike Boyd - a frequent United critic - has been saying as much lately.

When they do emerge with drastically lower costs - what how can American immediately respond? They can't. They will rise to the top as having the highest costs. I commend American for making money this quarter - but $6 million does not a recovery make.

In terms of you being dumbfounded by United employees - I can only make an observation as a customer/non-employee. First - most employees on this board tend to believe that the company will make it. That's their belief. That doesn't make them dumb or stupid. They have valid sources from which to base this belief (not one analyst I've seen has said United is likely to go away). Why would GE provide DIP financing? GE will never do anything considered dumbfounded.

Second - you can't fault a person loyal to their company and willing to fight for survival. Should they all throw up their hands and say it's all over? Should they instantly turn into negative people? Should they be pessamists? I for one see first hand that most are optimists and are positive people. I commend them for that.

Third - United employees have already shown that they are willing to sacrifice to help United. They are clearly aware of the seriousness of the problem.

If you are so dumbfounded by them - then why do you continue to frequent here? You don't run United or work with them - so why do you care anyway?

In any event - I usually skip over your posts - but had to speak up on this one. I've given my 2 cents on you - case closed.

 

[Ukridge]

World Traveler wrote: "dumbfounded (it is a compound word)"

Ah, even at this late evening hour another sterling intellect shines through. Frankly I never would have been able to recognize a polysyllabic construct without it being pointed out to me as such. Since you are skilled in the prose section of the course, may I most then humbly remind you that 'memento, homo, qui pulvis es et in pulverem revertis' or in a more modern translation "remember, man, that dust thou art, and to dust shalt thou return'
Of course a better phrase in describing your style would perhaps be borrowed from Plutarch "Vox et praetera nihil" or again the modern - "a voice and nothing more."


United Chicago - I am, like you, on the customer side of the fence and commend your fine explanation why some would hope that United survives.

Good night and cheers

 

[FWAAA]

I don't necessarily agree with you that AA has put their problems behind them. They have pension issues as well.

I agree that AA has issues of its own, but pensions are not one of them. So far this year, AA has contributed $461 million to its plans and has no need to contribute any more until next year. Next year's minimum contributions are expected to be about $450 million, which should not be a problem. With a current cash balance of nearly $4 billion, improving numbers in the face of $40/bbl oil and substantially lower costs than UAL, I'd say that AA's fortunes look pretty good right now.

UAL's cumulative minimum pension contributions for the next several years are over $4 billion; with a deficit like that, it's unlikely the pensions will survive. Unfortunately, there's no telling what kind of summer from hell would be triggered by the cancellation of the pensions. Hopefully we'll never find out. I hope UAL makes it.

 

[mweiss]

I agree that AA has issues of its own, but pensions are not one of them.

Being current isn't the issue. Pensions are much more expensive than DC plans. That's the issue.

 

[skyflyr69]

Congrats to UAL. with the extra time perhaps UAL can outlast a few of the other legacy carriers and find a new marketing partner instead of the current one.