=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SF Gate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2002/10= /19/BU137385.DTL ---------------------------------------------------------------------- Saturday, October 19, 2002 (SF Chronicle) Gray skies and red ink at United/Analysts fear bankruptcy is imminent as ai= rline posts $889 million loss David Armstrong, Chronicle Staff Writer United Airlines, the nation's No. 2 carrier, reported a staggering $889 million third-quarter loss on Friday, driving the airline closer to bankruptcy, even as it said it is nearing a critical agreement with unions for billions of dollars in wage concessions. United, the dominant carrier in Northern California, has now clocked nine consecutive losing quarters and lost nearly $4 billion since the start of 2001. The airline canceled a planned conference call with analysts and journalists Friday, and instead issued a prepared statement attributing the July-to-September losses to low consumer demand, unprofitable bargain fares for leisure travelers and continued falloff in lucrative business travelers. The flow of red ink from United ended a dreadful week in which seven of the eight major U.S. carriers collectively lost more than $2 billion during the summer high-travel season, when airlines ordinarily fatten their profits. Hammered by the recession and post-Sept. 11 fallout, U.S. carriers lost a record $7.1 billion last year. The horrendous business climate has sent commercial aviation into a historic tailspin. US Airways filed for Chapter 11 court bankruptcy protection in August, and United has said it, too, is considering Chapter 11. However, on Friday, the United statement said "the company's first priority continues to be accomplishing an out-of-court restructuring that puts the company on a firm financial footing." . BAY AREA WOULD FEEL PINCH Any layoffs or major service cutbacks spurred by the company's sagging finances would have a major impact here. United handles half of all passengers and flights at San Francisco International Airport, the area's biggest airport, and has 16,000 Bay Area employees. "There is no question that United continues to suffer from the financial challenges that plague our entire industry," United's chairman, president and chief executive officer, Glenn Tilton, said Friday. "While no one underestimates the magnitude of the challenge, we are maki= ng good progress on our financial recovery program," Tilton said. "Nobody should consider a Chapter 11 filing inevitable." Tilton said United plans to file a revised application to the Air Transportation Stabilization Board next week in an attempt to win a $1.8 billion federal loan guarantee. A management plan to achieve at least $1.4 billion in annual savings from their side will be included in the revised application. Most other savings are designed to come from labor. In late summer, the airline said the government board told United to cut operating expenses, including labor costs, in order to qualify for a loan guarantee. . CONCESSIONS ON THE TABLE In line with that, United asked its five major unions for $9 billion in wage and benefit concessions through a six-year period. The unions offered $5 billion. The two sides moved closer Friday, when United Chief Financial Officer Jake Brace said the company has downshifted its demands, and is now asking for $5.8 billion in givebacks over a 5 1/2-year-period. Jeff Zack, a spokesman for the Association of Flight Attendants, said his union and the other four will meet with UAL management next week to divvy up the cutbacks. He said the AFA will ask for profit sharing and equity in return for striking a deal, with the additional guarantee that no more givebacks will be required should United file for Chapter 11. Two major unions, the Air Line Pilots Association and the International Association of Machinists, each hold a seat on the UAL board of directors. Collectively, workers own 55 percent of UAL stock under an employee stock ownership plan adopted in 1994. A knowledgeable source close to the union negotiations, who asked not to be named, said givebacks would come in rough proportion to income levels, with the highly paid pilots absorbing the greatest wage cuts. . BANKRUPTCY SEEM INEVITABLE But even if management and labor forge an agreement and United gets its federal loan guarantee, some industry analysts say that might not be enough to stave off Chapter 11 for the ailing airline. "Even with a revised application, we believe a bankruptcy is more probab= le than not," said J.P. Morgan analyst Jamie Baker, who has an "underweight" rating on UAL and doesn't own shares. "Their $7 million cash burn rate significantly exceeded the $1 million during the second quarter and our own estimate for the third quarter," Baker told Bloomberg News. Should United go into Chapter 11, the airline would continue to operate = at near-normal levels. Passengers would notice few changes at United airport counters or in the air, although a good deal of restructuring would be going on behind the scenes. Chapter 11 or no Chapter 11, securing the government loan guarantee is important, said Ray Neidl, an airline analyst with Blaylock & Partners. "United has large debt maturity, and they really do need to roll that over, " said Neidl, who does not own UAL stock and whose company does not do business with UAL. "They need the government loan guarantee. Right now, the capital markets are closed to them." UAL ended the quarter with a cash balance of $2 billion. Coming due in t= he fourth quarter are several large cash obligations, among them a secured debt payment of $575 million due Dec. 2. The third-quarter hit was United's second-biggest quarterly deficit ever, following only the $1.16 billion loss in last year's third quarter, when the terrorist attacks shocked the airline industry. The latest net loss amounted to $15.57 per share, compared with the reco= rd loss of $21.43 per share a year earlier. Before special charges, including $418 million to establish a valuation allowance against its deferred tax asset, the loss was $8.82 per share. That was a bigger loss than the $7.42 per share consensus estimate of analysts surveyed by Thomson First Call. UAL shares were down 2 cents, or 1.16 percent, to $1.71 in trading Friday on the New York Stock Exchange. E-mail David Armstrong at davidarmstrong@sfchronicle.com., Chronicle news services contributed to this report.=20 ---------------------------------------------------------------------- Copyright 2002 SF Chronicle