This article from NYTimes.com has been sent to you by psa188@juno.com. United Set to File for Bankruptcy December 9, 2002 By EDWARD WONG CHICAGO, Dec. 8 - The board of the UAL Corporation, the parent company of United Airlines, voted this evening to allow management to file for bankruptcy protection. The vote came shortly after bankers and lawyers for the company reached agreement on the terms of a loan deal that would allow the airline to keep operating in bankruptcy court, shielded from its creditors. The bankruptcy filing is expected to come Monday morning, according to people who were briefed on the company's plans. The 12-member board met this afternoon at United's headquarters here for a final review of the financing package. United, the world's second-largest airline, would get $1.5 billion of so-called debtor-in-possession financing as it operates under bankruptcy protection. Of that, $800 million would be available 10 days after the filing, according to people briefed on the terms of the deal. Four lenders - Citigroup, J. P. Morgan Chase, Bank One and the CIT Group - would each provide $300 million, and Bank One would provide an additional $300 million to reach the total. That separate package provided by Bank One, which issues the credit cards linked to United's frequent-flier program, would make up a sizable part of the amount available after 10 days. Until today, it appeared that the lending arm of General Electric would be involved in the deal, but there were disagreements between United and GE Capital over the terms, said people who were briefed on the arrangements. GE Capital apparently wanted United to agree to terms related to loans and aircraft lease contracts that GE Capital already had with the airline. United refused because that would have set a precedent for negotiations with other creditors on similar loan and leasing arrangements, these people said. That friction with General Electric, as well as some last-minute deal-making with Bank One on the separate $300 million package, pushed the financing talks through the night on Saturday and well into this afternoon. "United and G.E. couldn't resolve those issues among themselves," one person briefed on the talks said. "They didn't need to resolve it, frankly. Everything was lined up." This person said the involvement of the CIT Group, which joined the final discussions several days ago, meant that General Electric's money was not needed. Debtor-in-possession financing gives United enough cash to keep up its operations in the early stages of a bankruptcy restructuring. The lenders get first claim on the airline's assets, ahead of other creditors. Later in its restructuring, United would have to look for exit financing. A bankruptcy protection filing by United, which is 55 percent employee-owned, would be the largest by any airline and one of the largest over all, as measured by the value of its assets. Those are estimated at $24.2 billion, almost the same amount that Adelphia Communications had when it entered bankruptcy court in June. Adelphia's filing is the sixth largest in the United States. Many industry experts have speculated that United should emerge from bankruptcy protection considerably smaller, but stronger. That is because United has the strongest worldwide route network of any carrier, as well as valuable assets in its landing rights at Heathrow Airport in London and at various Asian cities. Until American Airlines bought Trans World Airlines last year, United was the world's largest carrier. But airlines do not have an easy time operating under bankruptcy protection, as history has proved. Of the major airlines that have gone into bankruptcy and emerged from it since deregulation in 1978, only Continental Airlines and America West Airlines are still operating. United's executives will be struggling to steer their company down that path rather than following Braniff Airways, Eastern Air Lines, Pan American World Airways and T.W.A. When US Airways filed for bankruptcy protection in August, its executives issued optimistic predictions about its chances of emerging quickly from Chapter 11. But its unions have recently resisted giving further concessions, forcing the airline's major lender to threaten last week that it would withdraw its money and drive the carrier into liquidation if the workers did not comply. One person close to United said the company would begin negotiating with its unions for deep concessions within days of a bankruptcy filing. United's union leaders had tentatively agreed in the last month to give up $5.2 billion over five and a half years as United sought concessions to bolster its application for a $1.8 billion federal loan guarantee. But industry experts say United will have to seek much deeper concessions, which could involve asking the bankruptcy judge to rid it of existing labor contracts and the current governance structure, which allows representatives of the pilots' union and machinists' union to sit on the board. Lawyers for the company will ask the bankruptcy judge on the first day of the filing to allow the airline to keep up its operations at current levels. The court will then assemble a creditors' committee within a week or so. That committee, driven by a desire to see debts repaid, will have a large hand in the governance of the company. GE Capital and Boeing Capital, the financing arm of the Boeing Company, are two of United's largest creditors and will undoubtedly seek to be on the committee. GE Capital has about $1.9 billion tied up in United, and Boeing has about $1.3 billion, according to people briefed on those arrangements. That money is linked to loans, aircraft leases and investments. Boeing indicated in November that United was trying to renegotiate its payment terms. Aircraft values and lease payments have dropped by about 15 to 40 percent since the terror attacks of Sept. 11, 2001, particularly on older planes, and United is most likely renegotiating with those numbers in mind. "That remains an open issue and we can't predict the outcome of those discussions," Russell Young, a spokesman for Boeing Capital, said in a phone interview today. United is by far Boeing Capital's largest customer. Most of Boeing's money has gone toward loans for new aircraft. That debt is primarily secured by about a dozen relatively new 777 planes. Each plane has a list price of $150 million and an actual price of $100 million. Those planes are usually used on more profitable routes, and it would generally be in United's interests to renegotiate payment terms rather than have those planes repossessed. The company will have 60 days from filing to make payments or renegotiate terms. Otherwise, the creditors will have a right to repossess the planes. But if a creditor like Boeing took back planes, that company would have to redeploy them elsewhere, and that could be more costly than, for example, extending payment schedules. "It will be an interesting economic thing," one person close to United said. "Is it in their economic interest to seize the planes?" UAL was pushed to the edge of bankruptcy last Wednesday when the Air Transportation Stabilization Board, a federal panel set up to dole out financial aid to the airline industry after the Sept. 11 attacks, rejected the company's $1.8 billion loan guarantee application. One person familiar with that decision-making process said that United's estimate of its future revenue was two to three times the number that analysts for the board reached. And that person said the $5.2 billion that United offered in labor concessions was not solid enough because it included things like forgone future pay raises rather than real cuts, and it included provisions that would have moved pay amounts back up to 2000 levels in 2008. The board also realized that United would have to start making pension payments of $1 billion a year starting about next year, the person close to the board said. Fitch Ratings, a credit-rating agency, was brought in to advise the board, and it gave the requested loan a low grade. Speaking of Glenn F. Tilton, the UAL chief executive, this person said: "He was given bad financial and strategic advice. He put all his eggs in one basket." http://www.nytimes.com/2002/12/09/business/09AIR.html?ex=1040405555&ei=1&en=357cd28511e5b0ff 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