By Melissa Allison
Tribune staff reporter
Published December 10, 2003
As United Airlines passed the one-year anniversary of its bankruptcy filing Tuesday, the carrier was close to securing $2 billion in financing commitments that would help ensure its timely exit from bankruptcy reorganization.
Agreements with J.P. Morgan Chase & Co. and Citigroup Inc. could be signed in the next few days, according to sources close to the deal, and such commitments should significantly bolster United's chances of obtaining a loan guarantee from the federal government.
United parent UAL Corp. could approach the government as early as next week asking for a loan guarantee, sources said.
"This is one of the best managed restructurings I've ever been associated with," said Bill Repko, head of J.P. Morgan's restructuring group, who confirmed a deal is close.
An airline spokeswoman declined to comment on the matter.
Should United obtain government backing, it would be on track to emerge from bankruptcy in mid-2004 as planned. United filed for Chapter 11 protection from creditors on Dec. 9, 2002, and has been working on its reorganization plan.
The banks are not tying their loan commitment to United's ability to receive relief from Congress or the Internal Revenue Service for United's underfunded pension plans, sources said.
"United will resolve the pension issues. It's simply a matter of timing," said United spokeswoman Jean Medina.
J.P. Morgan and Citigroup are willing to finance $400 million independently, requiring the government to back 80 percent of the $2 billion loan, or $1.6 billion, sources said.
Typically the government guarantees 90 percent of such loans, which in United's case would be $1.8 billion.
Taking a 20 percent risk is a vote of confidence from the banks, said Michael Kayman, a restructuring consultant in Chicago.
"That signifies a belief by the lenders that United has a workable business plan," Kayman said.
Chicago-based Bank One Corp. also is expected to become a lender in the deal, although details of that arrangement have not been completed. A Bank One spokeswoman said the bank is "supportive of United, and we would expect to continue to support them in their exit financing."
A year ago, United lacked such support.
Shortly before the airline filed for bankruptcy, the Air Transportation Stabilization Board, a group formed after the Sept. 11 terrorist attacks to help carriers weather business losses, said United's business plan was deficient and declined to guarantee a loan for the Elk Grove Township-based company.
Since then, two of the board's three members have been replaced.
And United, which had independent backing for only 10 percent of the loan it wanted, has undergone a painful restructuring, including eliminating 21 percent of its employees and 34 percent of its salaries and related costs.
The company also has cut costs by renegotiating terms of leases and loans. And to save money on its shorter routes, the carrier is depending more heavily on regional carrier partners and has launched its own low-cost carrier called Ted.
Some critics say the company has not cut enough fat; others say its strategy lacks innovation.
Ultimately, it will be up to the stabilization board to decide whether United's new business plan and the support of J.P. Morgan and Citigroup are strong enough incentives to back the nation's second-largest airline.
Federal rules require the company to fund its pension plans with $4.8 billion over five years, most of it over the next three years. The airline has asked the IRS for a waiver to spread out about $2.4 billion of the early payments over the entire five years.
United officials and unions, along with other airlines, are lobbying Congress heavily for measures that would change the interest rate calculation for the pension obligations.
Like many companies, United also wants federal legislation that would enable it to pay the obligation over a longer period.
But lawmakers finished their work for the year on Tuesday without approving any pension relief, saying they would take the matter up in 2004.
United officials have said that the stabilization board last year cited the pension situation as an issue that needed to be resolved before it would guarantee a loan.
Sources said the airline's business plan takes into account various scenarios regarding pension funding, and that United's strong cash flow and potential government relief satisfied its bank lenders.
United's cash position is growing by roughly $7 million a day, compared with a daily cash burn of $7 million one year ago.
Copyright © 2003, Chicago Tribune
Tribune staff reporter
Published December 10, 2003
As United Airlines passed the one-year anniversary of its bankruptcy filing Tuesday, the carrier was close to securing $2 billion in financing commitments that would help ensure its timely exit from bankruptcy reorganization.
Agreements with J.P. Morgan Chase & Co. and Citigroup Inc. could be signed in the next few days, according to sources close to the deal, and such commitments should significantly bolster United's chances of obtaining a loan guarantee from the federal government.
United parent UAL Corp. could approach the government as early as next week asking for a loan guarantee, sources said.
"This is one of the best managed restructurings I've ever been associated with," said Bill Repko, head of J.P. Morgan's restructuring group, who confirmed a deal is close.
An airline spokeswoman declined to comment on the matter.
Should United obtain government backing, it would be on track to emerge from bankruptcy in mid-2004 as planned. United filed for Chapter 11 protection from creditors on Dec. 9, 2002, and has been working on its reorganization plan.
The banks are not tying their loan commitment to United's ability to receive relief from Congress or the Internal Revenue Service for United's underfunded pension plans, sources said.
"United will resolve the pension issues. It's simply a matter of timing," said United spokeswoman Jean Medina.
J.P. Morgan and Citigroup are willing to finance $400 million independently, requiring the government to back 80 percent of the $2 billion loan, or $1.6 billion, sources said.
Typically the government guarantees 90 percent of such loans, which in United's case would be $1.8 billion.
Taking a 20 percent risk is a vote of confidence from the banks, said Michael Kayman, a restructuring consultant in Chicago.
"That signifies a belief by the lenders that United has a workable business plan," Kayman said.
Chicago-based Bank One Corp. also is expected to become a lender in the deal, although details of that arrangement have not been completed. A Bank One spokeswoman said the bank is "supportive of United, and we would expect to continue to support them in their exit financing."
A year ago, United lacked such support.
Shortly before the airline filed for bankruptcy, the Air Transportation Stabilization Board, a group formed after the Sept. 11 terrorist attacks to help carriers weather business losses, said United's business plan was deficient and declined to guarantee a loan for the Elk Grove Township-based company.
Since then, two of the board's three members have been replaced.
And United, which had independent backing for only 10 percent of the loan it wanted, has undergone a painful restructuring, including eliminating 21 percent of its employees and 34 percent of its salaries and related costs.
The company also has cut costs by renegotiating terms of leases and loans. And to save money on its shorter routes, the carrier is depending more heavily on regional carrier partners and has launched its own low-cost carrier called Ted.
Some critics say the company has not cut enough fat; others say its strategy lacks innovation.
Ultimately, it will be up to the stabilization board to decide whether United's new business plan and the support of J.P. Morgan and Citigroup are strong enough incentives to back the nation's second-largest airline.
Federal rules require the company to fund its pension plans with $4.8 billion over five years, most of it over the next three years. The airline has asked the IRS for a waiver to spread out about $2.4 billion of the early payments over the entire five years.
United officials and unions, along with other airlines, are lobbying Congress heavily for measures that would change the interest rate calculation for the pension obligations.
Like many companies, United also wants federal legislation that would enable it to pay the obligation over a longer period.
But lawmakers finished their work for the year on Tuesday without approving any pension relief, saying they would take the matter up in 2004.
United officials have said that the stabilization board last year cited the pension situation as an issue that needed to be resolved before it would guarantee a loan.
Sources said the airline's business plan takes into account various scenarios regarding pension funding, and that United's strong cash flow and potential government relief satisfied its bank lenders.
United's cash position is growing by roughly $7 million a day, compared with a daily cash burn of $7 million one year ago.
Copyright © 2003, Chicago Tribune
Obviously these "professionals" don't read flightinfo.com for the real breakdowns.
