This article from NYTimes.com has been sent to you by psa188@juno.com. UAL Prepares for Bankruptcy December 6, 2002 By EDWARD WONG CHICAGO, Dec. 5 - United Airlines moved today to firm up financing in advance of a bankruptcy filing, even as it continued talks with its unions and suppliers to secure concessions that would help stem its mounting losses. United's supporters in Washington renewed their own scramble to win aid, with some lawmakers suggesting that Congress should overturn the decision of a federal panel that voted Wednesday to deny the airline $1.8 billion in loan guarantees. Through a spokesman, President Bush said today that he "respects" the panel's decision. But he held back from enthusiastically endorsing the ruling, leaving open the possibility that the panel's three voting members could - behind closed doors - more favorably review any revised business plan that United submits, whether the airline is in or out of bankruptcy court. United, the world's second-largest airline, was in the final stages today of negotiating commitments from four lenders - Citigroup, J. P. Morgan Chase, Bank One and the financing arm of General Electric - for $1.5 billion in financing it would need to keep operating in bankruptcy protection, people briefed on the talks said. United is expected to file for bankruptcy protection as soon as it confirms that financing, which these people said should occur before Monday. But financial experts and bankruptcy lawyers said that United could take years to emerge from bankruptcy court. Its reorganization would be complicated by whatever role a judge grants to employees, who own 55 percent of the airline, experts said, adding that United could come out of bankruptcy much smaller than today's globe-straddling carrier, which operates about 1,800 flights daily. To have any hopes of operating smoothly in bankruptcy - and to avoid selling airport rights or other assets at an early stage - United may need even more than $1.5 billion in financing, analysts said, and certainly will require deep concessions from its unions. Trying to strengthen its application for the loan guarantees, United virtually secured $4.5 billion in pay and other concessions from its pilots, flight attendants and other workers. But those agreements were contingent on the airline's winning the backing of all its unions, and with the mechanics having held out in a vote last Wednesday, the airline now must negotiate new commitments from all its labor groups. Glenn F. Tilton, United's chief executive, met with representatives of the pilots' union this morning. Union leaders spent much of the day trying to devise a strategy that would allow the airline to avoid filing for bankruptcy protection. That effort included plans for lobbying Congress and the White House. "We are engaged in conversations with the union coalition and with other stakeholders to determine the next steps," said Rich Nelson, a United spokesman. But union leaders, noting that the federal Air Transportation Stabilization Board did not specifically demand further union concessions as the price of reconsidering aid for United, expressed reluctance to offer more without the assurance that any deal would keep the airline out of bankruptcy court. Angry, dejected workers braced themselves for stringent cost-cutting measures, while travelers' reactions ranged from oblivious to confused about the prospect of a bankruptcy filing by United. If the company demands more concessions, "I'm not going to stay at United Airlines," said Aidan P. McCormack, 37, a shop inspector in San Francisco. "I want to be paid what I'm worth. I'm a survivor. We'll survive one way or another. People came here thinking this was a great job, and this was a great job, but things have changed through the years." At LaGuardia Airport, Natalie Peters, a Brooklyn woman bound for Argentina, said she was very concerned about the airline's future: "I'm going to Buenos Aires; who knows whether I'll ever get back. You don't go on a flight half-heartedly, and especially an international flight, no less. I most definitely would have chosen a different carrier." Industry experts and United's rivals predicted that a bankruptcy filing would generally help the airline business. If United is forced to cut back flights, that would reduce the industry's capacity and give carriers more leeway to raise prices. United, which has some of the highest labor costs in the industry, presumably would slash those expenses, so other airlines might ask their unions for deep concessions, too. United and its rivals are all victims of the economic excesses of the late 1990's. Back then, when they were flush, airlines added large numbers of flights and signed off on generous union contracts, financed by business travelers willing to buy high-price tickets with dot-com cash. All that, of course, crashed in the last two years, and now the airlines - with the exception of low-fare, low-cost carriers like Southwest Airlines - are in a cycle in which their revenues cannot keep up with costs. United has less cash and higher costs than some of its competitors, nudging it toward the cliff first. "United will be a wake-up call to people at American and Delta and Northwest and Continental, who to some extent all suffer from the same problems," said Michael E. Levine, a former airline executive who is now a professor at Yale Law School. "I think most of them know they have to tackle costs," he said. "And they felt they couldn't approach anyone until now. Without the real threat of bankruptcy, you can't do a work-out outside of bankruptcy." United's deepening problems were reflected today in the stock of its parent company, UAL. The New York Stock Exchange halted trading in UAL shares for several hours. The stock eventually lost $2.12, to close at $1, leaving UAL down 93 percent for the year. The exchange said it was reviewing whether to delist the company, and Dow Jones dropped UAL from its transportation index. UAL bonds fell sharply, too, as Standard & Poor's lowered the company's credit rating to D, reflecting what it described as "the disappearance of any realistic possibility" that the company could cure its default on about $920 million of debt. United, which has about $1 billion in cash but is losing as much as $8 million a day, began trying to arrange the financing it would need for a bankruptcy filing about two to three weeks ago, said one person briefed on the talks. The company intensified those efforts 10 days ago, and is now completing the details, like how much of the loans, known as debtor-in-possession financing, it will get at various times. Such arrangements are typical when a big company like United seeks bankruptcy protection, but the $1.5 billion being discussed is an enormous credit line. There is a chance that General Electric, one of the lenders in talks with United, would be replaced, because it is asking for very "onerous" terms, said another person briefed on the negotiations. Lufthansa, the German airline that is part of the Star Alliance, a 14-airline partnership that relies heavily on United's routes and customers, could also be brought into the financing at a later stage, this person said. If United were to run short of cash and be forced to begin liquidating valuable assets, rivals like American, Delta Air Lines and Continental would probably line up to be buyers. American is a unit of AMR. Gordon M. Bethune, the chief executive of Continental, said that he would love to snap up United's landing rights at Heathrow Airport in London, where United and American are the only United States airlines with operations. Continental, he added, might also want to expand in Denver - one of United's hubs - to increase its foothold in the West. People in the industry speculate that United's extensive Asian route system would be valuable to virtually every major rival except Northwest, which already has large operations in Asia. American Airlines, the world's biggest airline, potentially has the most to gain from a shrunken United. The two go head-to-head in Chicago, one of the country's largest hubs. American only surpassed United in size by acquiring Trans World Airlines last year. "Filing Chapter 11 doesn't have the traumatic effect in this industry that it once did," said Tim Doke, a spokesman for American. "But there's no question that some traveler uneasiness, if United were to file for bankruptcy, would potentially create some share-shift to its competitors, and we'd be in a position to absorb that." Union officials continued to hold out hope for a rescue from Washington, where they were lobbying lawmakers today in hopes that Congress would overturn the air board's rejection. But many lawmakers - even the most ardent supporters of United - said that there was little they could do. Senator Richard Durbin, a Democrat from the airline's home state of Illinois, said that "bankruptcy is practically inevitable." http://www.nytimes.com/2002/12/06/business/06AIR.html?ex=1040189071&ei=1&en=a4cce78f074a0ea7 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