Deal puts execs 'in a very tight box' By Dan Reed, USA TODAY The deal that United Airlines cut with the lenders providing its bankruptcy= =20 financing will require the carrier to cut its costs beyond what its=20 management thought possible a week ago and to do so in a way that won't=20 reduce revenue or cash flow. Buried in the details of United's deal for=20 $1.5 billion in debtor-in-possession (DIP) financing, which allows it to=20 keep operating while reor- ganizing, is a requirement that the airline=20 reduce costs by $300 million more than the cuts the airline's management=20 proposed in a business plan presented to the lenders on Dec. 2. The deal=20 also prohibits United from lowering its profit projections beyond those in= =20 the Dec. 2 plan and requires it to hit monthly and annual cash-flow=20 targets."The bankers are just protecting their interests," says Darryl=20 Jenkins, head of the Aviation Institute at George Washington University. "But it puts United's management in a very tight box."They'll have to cut=20 costs more dramatically than anyone agreed to before the filing."But they=20 can't just cut willy-nilly, because if the cuts reduce their revenues and=20 cash flow, they're toast" under the terms of the deal, he says.The=20 complicated, three-tiered loan deal gives United quick access to $800=20 million. Given its current rate of cash burn, estimated by United's lead=20 bankruptcy attorney at $20 million to $22 million a day this month and=20 about $15 million a day in January, "That should hold it at least through=20 February, and maybe a little even deeper into the spring," says Sam=20 Buttrick, airline analyst at UBS Warburg.After that, United likely will=20 need to begin drawing on the remaining $700 million of the financing. But=20 it will get access to the additional funds only if it hits the monthly=20 cash-flow targets and shows progress toward cutting the extra $300 million= =20 in costs.Robert Miller, a bankruptcy attorney and head of the restructuring= =20 consulting practice at Financo, a New York investment bank, says the=20 lenders are "attempting to club everybody into the position that the=20 company would have liked them to be in before the bankruptcy."United was=20 forced into Chapter 11 by dwindling revenue and industry-leading costs. Efforts to win huge savings from labor, suppliers and lessors fell well=20 short of what management initially said was necessary and what the federal= =20 government said last week was needed for the airline to land a $1.8 billion= =20 loan guarantee.Now the DIP lenders =97 Bank One, J.P. Morgan, Citibank and= =20 CIT Group =97 are using the restrictive loan agreements to "say, in effect,= =20 'Do this, or death,' " Miller says.The lenders are trying to force everyone= =20 involved to "face reality," says Miller. "They have to, or United will end= =20 up in the graveyard with so many others." The owner of Roger's Trinbago Site: Roj (Roger James) *************************************************** escape email mailto:ejames@escape.ca Trinbago site: http://www.tntisland.com CBC Website http://www.tntisland.com/caribbeanbrassconnection/ The Trinbago Site of the Week: (TnT News) http://www.tntmirror.com/ (TnT News) courtesy of Roj Trinbago Website & TnT Web Directory Roj's Trinbago Website: http://www.tntisland.com TnT Web Directory: http://search.co.tt *********************************************************