Endgame in sight for UAL? <mailto:lwhiteman@thedailydeal.com> by Lou Whiteman Updated 06:21 PM EST, Nov-6-2002 =20 =09 Despite recent developments that could help UAL Corp. avert bankruptcy, airline industry watchers still see plenty of reasons to believe the company is headed for Chapter 11.=20 The Elk Grove Township, Ill.-based company, parent of United Air Lines Inc., seemingly bought itself some time Tuesday, Nov. 5, when it announced it had reached an agreement with German bank Kreditanstalt = f=FCr Wiederaufbau to restructure about $500 million in debt due before year's end. Although UAL still has $375 million in additional payments due in early December, the deferrals mean it needs less cash to continue operations, reducing the risk of bankruptcy.=20 UAL chief executive Glenn Tilton said in a statement that the restructuring was "a welcome development in our continuing effort to achieve an out-of-court financial recovery."=20 Even with the deferral, UAL has warned that it needs wage concessions from labor to remain viable. It also has made progress in labor talks, agreeing in principle to a deal with its unions that would shave an estimated $1 billion in annual costs.=20 A third ray of hope came Wednesday when J=FCrgen Weber, CEO of United alliance partner Deutsche Lufthansa AG, told reporters that his company has not ruled out sending cash across the Atlantic to assist its struggling partner.=20 The news has been enough to send UAL stock soaring. UAL shares, which in October traded as low as $1.42, closed Wednesday at $4.45, up 30 cents.=20 Behind the scenes, however, there is considerably less reason for optimism about UAL's prospects.=20 Industry sources say the good news has not stopped an honor roll of private investment groups from considering bids to buy a controlling stake in United on the assumption it will go bankrupt. Those investors are rumored to include Texas Pacific Group and oil billionaire Marvin Davis, both of which recently submitted bids for bankrupt US Airways Group Inc., and famed investor George Soros.=20 A spokesman for Texas Pacific declined comment, and representatives for Soros and Davis could not be reached. But an industry consultant who says he was brought in to discuss United with one potential bidder confirmed that discussions are taking place and that there is more than one party reported to be interested.=20 Analysts say there is good reason for skepticism about UAL's hopes of avoiding bankruptcy. The company's remaining $375 million in debt due this year is owned by a consortium of creditors, rather than a single bank, making it nearly impossible to defer payment. And despite reported progress on the labor front, many say UAL and its labor unions remain far from agreement on the scope of concessions needed to win critical government loan guarantees.=20 Jim Higgins, who covers the company for Credit Suisse First Boston, said in a report that he is concerned that labor will view KfW's deferral as a sign "that UAL's financial position is not as dire as previously believed, potentially prolonging discussions with labor groups."=20 United is spending $9 million in cash a day and would be left with less than $750 million in the bank after its $375 million payment, Higgins said, making a loan guarantee crucial to sustain operations.=20 "Given UAL's limited time frame, our bias remains that UAL will be unable to reach a restructuring plan as required to obtain government-guaranteed loans before being forced into bankruptcy," he said.=20 Others say that the interest of investors such as Texas Pacific and Davis is a sign that the airline may be headed into bankruptcy. Each knows the airline industry well, with Texas Pacific officials participating in the restructuring of America West Airlines and Continental Airlines Inc., two of the best-known airline reorganizations of the 1990s.=20 Davis has had less luck, but not for lack of trying. He bid $6.2 billion for United during a previous reorganization in 1989, $2.7 billion for Northwest Airlines Corp. in 1989 and joined with Lufthansa in 1992 in an attempt to acquire Continental. He fell short in all three attempts, as he did for US Air earlier this year.=20 Industry observers say that if any of these investors are seriously considering a play for UAL, it likely means they believe a Chapter 11 filing is inevitable.=20 "There is a real disconnect between the market's interpretation of the news and what these investors seem to be thinking," said one consultant who asked not to be identified. "The smart money is always with the billionaires."