This article from NYTimes.com has been sent to you by psa188@juno.com. Bankruptcy Filing Appears Ever More Likely at United December 7, 2002 By EDWARD WONG with RIVA D. ATLAS CHICAGO, Dec. 6 - The chief executive of United Airlines, Glenn F. Tilton, acknowledged today that a bankruptcy filing was "a more likely outcome" for the carrier in the wake of its unsuccessful effort to obtain a federal loan guarantee. And, raising the ire of some union leaders, he said that the airline would seek concessions on work rules from its employees. United, the world's second-largest carrier, continued to work out details on loans from four major lenders in preparation for a Chapter 11 filing that is expected on Sunday or Monday. The airline, a unit of the UAL Corporation, has worked out terms with lenders that would give it immediate access to half of $1.5 billion in debtor-in-possession financing, according to one person briefed on the arrangements. The 12-member board of UAL, which includes one representative each from the pilots, machinists and salaried workers, was scheduled to meet in Chicago on Saturday. A board vote is needed to approve a Chapter 11 filing. Union leaders spent today talking with one another and with executives at United to see what would be needed from workers in a last-ditch effort to keep the airline out of bankruptcy court. Paul Whiteford, the representative of the pilots' union on the board, said in a phone interview that the company had yet to approach the pilots about further concessions even though industry experts and analysts said executives would have to obtain deep cuts from workers to operate under bankruptcy protection. "The company has had no conversation with any of the principals about its business plan going into Chapter 11," Mr. Whiteford said. "I don't think the company has been focusing on Chapter 11. The company has been talking about staying outside of court." Although union leaders said they held out hope that the airline would make another appeal to the Air Transportation Stabilization Board, the federal panel that rejected United's bid for a $1.8 billion loan guarantee, there was no sign that the board would seriously reconsider United's application. That spurred Mr. Tilton to tell workers today in a recorded message on a phone hot line: "Obviously with what was essentially a no from the A.T.S.B., Chapter 11 becomes a more likely outcome because it allows us to restructure and to continue to serve our customers while we do it." In the same message, he said that "under Chapter 11, our plan will have to be more aggressive than it would have been out of court." United, he said, "will need more cost savings" and "work rules will have to be on the table." "We have to take this opportunity to create a durable, stable cost structure," he added. Mr. Whiteford said that Mr. Tilton's comments could pose a significant threat to employee morale. "I was surprised to see anyone from the company, much less the C.E.O., comment on what would occur in a collective bargaining process if we were to go into Chapter 11," he said. "I consider the process premature." Scotty Ford, the president of the union local that represents United's mechanics, said that as long as the airline was still out of bankruptcy court, "I'm not ready to open up my contract and give up things to make up for bad management practices." He added that the business plan that United executives presented to the federal panel "stunk," and that "to miss the boat by this much is an embarrassment." Patricia A. Friend, president of the Association of Flight Attendants, said she could not recall her workers ever entering an airline bankruptcy without having already worked out concession agreements with the company. Almost all the unions agreed in the last month to give United $4.5 billion in concessions, but those agreements were voided when the mechanics voted against giving concessions and when the government rejected the loan- guarantee application on Wednesday. On the hot line, Mr. Tilton said that United had been laying out a dual-track plan by working with financial advisers to prepare for a bankruptcy filing if the loan guarantee fell through. Today, the airline continued working out last-minute details on $1.5 billion in financing with Citigroup, J. P. Morgan Chase, Bank One and the lending arm of General Electric. Bank One issues the credit cards linked to United's frequent-flier program. A debtor-in-possession loan is a form of financing that receives the first claim on a bankrupt company's assets, ahead of all other creditors. It is usually provided by a handful of lenders, like banks or finance companies, who then sell off pieces of the loan to other institutions. It is unlikely that United is focused right now on finding a private investor to take a large equity stake in the company and help shepherd it through the bankruptcy process, according to a lawyer who has worked on airline bankruptcies. More pressing concerns include completing the debtor-in-possession financing and negotiating with unions. Moreover, private equity firms might be wary about becoming involved at this point with the complex governance structure at United, which is 55 percent employee-owned. It will probably be several months before United's management has the time to focus on talking to outsiders, the lawyer said. "There is no way this is on their plate right now," he said. "Once you are in the fishbowl of a Chapter 11, it is much more difficult to have that dialogue." The time to begin those discussions was several months ago, he said. When US Airways filed for bankruptcy last August, it did so after spending weeks negotiating an investment by the Texas Pacific Group, the private equity firm that has invested in several troubled airlines. Texas Pacific, which committed itself to taking a stake in US Airways at the time of its bankruptcy filing, was eventually outbid by the Retirement Systems of Alabama. Executives close to United, contacted earlier this week, did not rule out eventually holding discussions with a private equity investor like Texas Pacific. A spokesman for Texas Pacific, Owen Blicksilver, declined to comment about whether that group might be interested in making an investment in United. Another past investor in airlines, Carl C. Icahn, said yesterday that he was not interested in taking a stake in United. Mr. Icahn struggled for years to turn around Trans World Airlines, which was acquired out of bankruptcy by American Airlines last year. Some industry experts noted that Marvin Davis, a billionaire oil investor from Los Angeles, or David G. Bronner, the chief executive of the Alabama pension fund, or Jonathan Ornstein, the chief executive of Mesa Air, might eventually want to be involved in United. When asked about the airline, Mr. Bronner simply said, "Everything that US Air did right, United did wrong." Reflecting those missteps, the stock of UAL continued to decline today, slipping 7 cents, to 93 cents a share. The manager of one hedge fund with short-term bonds in United said his company was debating whether to try to obtain representation on the creditors' committee that would be assembled by the bankruptcy court. All bondholders are undoubtedly wondering right now whether to take part, the manager said. The unions would probably try to get on the committee, with the machinists having the best chance because the company owes them $500 million in back pay. A few politicians in Washington chimed in on behalf of United and its workers today, but their comments are unlikely to avert a bankruptcy filing. House Speaker J. Dennis Hastert, a Republican from United's home state, Illinois, said that the federal panel's decision was "clearly a wrongheaded decision for our nation's economy on so many grounds." The Rev. Jesse Jackson said that the Bush administration, which had appointees on the federal panel, was "trivializing the impact of airline bankruptcies on jobs, services and households." http://www.nytimes.com/2002/12/07/business/07AIR.html?ex=1040276394&ei=1&en=8412f1b3780c0440 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. 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