CHICAGO, Nov 30: United Airlines is likely to file for bankruptcy within the next two weeks unless it can get a new wage-cut deal from reluctant mechanics soon and a crucial federal guarantee of a $1.8 billion loan, sources familiar with the matter said on Friday.
Mechanics at United, the No. 2 US airline, on Wednesday rejected $700 million in proposed pay cuts over 5-1/2 years, sharply increasing the odds of bankruptcy as a large debt payment comes due next Monday.
Shares of United’s parent UAL Corp. fell 31 percent on Friday, and a major credit rating agency downgraded the company’s long-term debt.
The mechanics’ vote makes bankruptcy virtually inevitable for United and UAL, wrote Philip Baggaley, an analyst for credit rating agency Standard & Poor’s.
The mechanics’ rejection jeopardizes pay-cut agreements achieved by sister unions, including those for pilots and flight attendants. All the unions involved said the givebacks were contingent on every union taking part in the sacrifices.
Various media reports have listed Dec. 2 as the likely day for a bankruptcy filing, but sources familiar with the matter said that was never the actual deadline to turn to the courts.
For one thing, United as yet still has no debtor-in-possession financing lined up to keep operating, even though sources said it has been talking to major banks including JPMorgan Chase and Citicorp along with GE Capital and Boeing Capital.
The $375 million payment due on Dec. 2 is on aircraft-backed securities called Enhanced Equipment Trust Certificates, publicly held debt that has better protection generally and under US bankruptcy law than other forms of credit. There is a 10-day grace period, however, in which United can make the payments to creditors without being considered in default.
UAL shares closed off $1.12 at $2.51 in active trading on the New York Stock Exchange. The stock was the largest percentage loser on the exchange.
In a bankruptcy proceeding, issues must be resolved within 60 days, according to section 1110 of the federal code, and after that lessors and financiers have the right to take back their planes, engines and spare parts.
During the grace period on the EETCs running until Dec. 12, United will be working feverishly to get a new deal with union mechanics and will again press its case to federal officials weighing the loan guarantee, sources said.
The International Association of Machinists, District 141M, said on Thursday its 13,000 members rejected their portion of a total $1.5 billion wage cut deal by a 57 percent margin. Some 24,000 other IAM members, including public service workers and baggage handlers, part of a separate bargaining unit called District 141, approved their portions of the cuts — $800 million.
United, based in Elk Grove Village, Illinois, said it immediately began new talks with the mechanics. But union spokesman Joe Tiberi on Friday said no such talks had taken place.
No negotiations or no scheduled negotiations have been set up, Tiberi said.
After much negotiation, United recently secured agreements for $5.2 billion in wage cuts from all the leadership of five separate unions as part of a financial recovery plan put before the Air Transportation Stabilization Board.
The board is a new federal agency created after the Sept. 11 attacks and charged with doling out up to $10 billion in loan guarantees.—Reuters