now that you say all this, that is exactly what he was talking about...I guess I was paying attention..rare......this sounds very ugly for UA.....might be a blessing for other airlines to pick up their passenger load and possibly make a profit.....maybe those who have been saying a big one need to go to save the industry may have been right after all....
I think redtailer's synopsis was a little overdramatic, but some of the points I think were OK.
I'm not sure where he got the triggers, unless you read some analyst's opinions and those were his/their guesses. If you listen to the quarterly conference calls, very often reporters will ask the executives about covenants and they won't answer. But somewhere in the 2B area there are probably some triggers where credit card suppliers, for example, will require a larger holdback for future purchases. So a portion of the cash balance will likely go from the unrestricted column to the restricted column to cover that holdback. That's basically there to protect the credit card companies from a bankruptcy because if you buy your ticket on a credit card, the credit card company will owe you a refund if the airline can't fulfill its obligation. The "death spiral" comes into play if unrestricted cash balances fall below another trigger as cash is move from unrestricted to restricted for the credit card company, which could trigger another covenant for another bond holder, which then requires more cash, etc. It's certainly a possibility if the cash burn continues at past rates.
I doubt 2B will trigger a BK filing. I'm not sure where he got that number from. The news release UAL made public at the end of the 2nd quarter showed 2.8B total cash, 2.6 unrestricted, 281M restricted, and 185M tied up as collateral for some hedges. I think we have 1.1B to borrow against after the spare parts were mortgaged. I don't know what that 1.1B will actually fetch on the market, but I doubt it will be as bad as the spare part deal, simply because my understanding is that spare parts just don't make for good collateral like an airplane does, for example. If the debtor defaults, the creditor has to round up the parts, find multiple buyers, sell them, etc., all of which takes time and money, making it a PITA for the creditor. The creditor is compensated for that difficulty and risk by getting a theoretical greater value of spare parts as collateral than the cash he provides.
Regardless, in order for UAL to die by winter, we would have to burn through 1.1B in collateral, and I would WAG well over 1B in cash between now and whatever the OP's definition of winter is. 2.1B over several months? Possible, I guess, but doubtful. The industry has had 2 fare increases stick, UAL is still cutting unprofitable capacity (unfortunately), and I suspect that 3rd quarter numbers will be cash flow positive.
If we actually ended up in Chapter 11, personally I doubt it would ultimately end up being a liquidation. If we were talking last OCT-NOV, yeah. Not today. I think they'll just take what little we employees have left through the 1113c process after we refuse to cooperate (kiss scope, codeshare, in-house training, bunkees, etc., goodbye), screw the creditors again, and come out a smaller virtual airline with major outsourcing on both the widebody and narrowbody ends, much to the detriment of us employees. That's my guess.
