This article from NYTimes.com has been sent to you by psa188@juno.com. Loan Denied, United's Survival Effort Turns Urgent December 5, 2002 By MICHELINE MAYNARD with RIVA D. ATLAS CHICAGO, Dec. 4 - Having focused attention in recent weeks on the gamble that United Airlines could somehow obtain loan guarantees from a skeptical federal board, Glenn F. Tilton, the chief executive, appears certain to lose an even bigger bet: keeping his carrier out of bankruptcy court. Despite vows by United and its unions to pull together with whatever resources they can amass to keep the airline afloat, bankruptcy experts and United's competitors maintain that a bankruptcy filing is inevitable and will come within days. And although United, a unit of the UAL Corporation, has been working with its lawyers for months on a reorganization plan, Mr. Tilton's to-do list has several tasks that have yet to be completed. Mr. Tilton failed to obtain concessions from United's mechanics, who were the only holdouts in the airline's bid for employee backing of its recovery plan. They rejected the airline's first request for wage and benefit cuts and canceled a second vote planned for Thursday after the loan-guarantee board's decision. Because all the employees' concessions were linked to approval of its loan application, United must now craft new deals with all its unions in its restructuring drive. Though discussions with lenders have been under way for weeks, the airline has not lined up the $2 billion in debtor-in-possession financing that it will need to run its day-to-day operations, although many bankruptcy experts see a financing agreement as a foregone conclusion. While most leases on United's jets have been renegotiated, some holdouts remain, raising the possibility, albeit remote, that some could march into court and demand their planes back. And Mr. Tilton does not have the prospect of any kind of partner that could swoop in and rescue United. None of its fellow players in the Star Alliance - Air Canada, the Brazilian carrier Varig or Lufthansa of Germany - have the resources to do the job, despite their expressions of moral support. The rejection by the federal air board makes a bankruptcy filing for United all but inevitable, bankruptcy lawyers and analysts said. James J. White, a professor at the University of Michigan School of Law, predicted the airline would be in court by early next week. One motivating factor is a looming $375 million payment on debt backed by aircraft, which the airline missed this week. A grace period on that payment ends Dec. 16. Philip Baggaley, a credit analyst with Standard & Poor's, said United would file for Chapter 11 as soon as it secures debtor-in-possession financing, which Professor White expects to be arranged quickly now that the application for federal loan guarantees has been rejected. Professor White said the size of the financing, which United will use to pay for its immediate needs, was less important than its symbolism to its vendors, like fuel suppliers. "The real significance of it is not for someone to lend you a lot of money but to appear to be willing to do so," he said. "And therefore the guy pumping gas for you in Omaha will keep doing it because he's more confident that he will be paid." One immediate concern for the airline would be the location of a bankruptcy filing. Probable places include Delaware, where it is incorporated, or Chicago, which is close to United's headquarters in the suburbs and also home to Kirkland & Ellis, the law firm that has been exploring a reorganization for the airline. That effort is being headed by James Sprayregen, a partner in the firm, who could not be reached for comment tonight. While a Chicago filing could be most convenient, it is also probable that United employees would fill the courtroom, creating a potentially contentious atmosphere. A bankruptcy filing is not easy even for the most prepared airlines. "I've seen a lot of Chapter 11's, and no one is the same," Douglas Steenland, the president of Northwest Airlines, said in an interview this afternoon. "A lot depends on individualized decisions by the team that is running the airline." Mr. Steenland, who is a lawyer, had roles in several airline bankruptcies over the last 15 years. As proof, he said the industry need only consider the experience of US Airways, which filed for Chapter 11 two months ago in a prepackaged bankruptcy with the help of Texas Pacific Group. US Airways had an advantage that United did not have, the conditional approval of $900 million in federal loan guarantees. Despite that, it has sliced spending even deeper than it originally anticipated, eliminated routes, closed maintenance operations and gone back to its unions for more concessions, only to have its employees dig in their heels. Labor issues would be a focal point in a United bankruptcy, posing the ultimate test of Mr. Tilton's belief in employee ownership. United is 55 percent owned by its employees, which have three representatives on its board. In seeking an initial round of concessions, the airline promised that it would not seek to void its contracts in bankruptcy court unless faced with dire circumstances that threatened its existence. It did not spell out what those circumstances would be, and the guarantee hinged on United's ability to win approval for the loan guarantees. Now, given its inability thus far to tie up all its loose ends, that issue could be raised as soon as its lawyers walk into court. A request by United to cancel its labor agreements, for which it would have to spell out specific reasons, would be "exquisitely ironic" given its governance structure, said David Gregory, professor of labor law at St. John's University in Queens. "It would be a basic repudiation of the concept of the employee enterprise," he said. In bankruptcy, he added, United would face "a real obligation now to moderate labor costs, and layoffs alone will not take care of that." Even with that question looming, United would face more mundane tasks as it arrives in court. On the first day, United would ask the judge to issue orders that allow crucial vendors, like fuel suppliers, caterers and travel agents to be paid, Mr. Steenland said. The airline would pledge to honor all tickets that had been issued for future flights and also create a trust fund so that tax revenues due to local airport authorities and governments would be paid. Such minutiae helps explain in part why United's management may have preferred to focus on winning approval for loan guarantees rather than on a bankruptcy filing. Now, however, that decision could complicate United's efforts to reorganize speedily, said one person briefed on the company's financial strategy. "The C.E.O. appears to have been putting all his eggs in one basket," he said. http://www.nytimes.com/2002/12/05/business/05IMPA.html?ex=1040124037&ei=1&en=9ed547a4349250bb HOW TO ADVERTISE --------------------------------- For information on advertising in e-mail newsletters or other creative advertising opportunities with The New York Times on the Web, please contact onlinesales@nytimes.com or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to help@nytimes.com. Copyright 2002 The New York Times Company