This article from NYTimes.com has been sent to you by psa188@xxxxxxxxx /-------------------- advertisement -----------------------\ Explore more of Starbucks at Starbucks.com. http://www.starbucks.com/default.asp?ci=1015 \----------------------------------------------------------/ United Delays Its Emergence From Chapter 11 Until Next Year August 30, 2003 By MICHELINE MAYNARD and MARY WILLIAMS WALSH Shifting course yet again, United Airlines said yesterday that it did not expect to emerge from Chapter 11 bankruptcy proceedings this year after all, blaming an uncertain economic outlook for prolonging its work on a restructuring plan. United officials told a United States Bankruptcy Court in Chicago that the airline now expected to leave Chapter 11 protection sometime in the first half of 2004. United, a unit of UAL, is the nation's second-largest airline behind American Airlines. Last spring, executives at United, including its chief executive, Glenn F. Tilton, projected that the airline would emerge from bankruptcy as early as December, a year after it sought court protection. At that time, the airline also signaled that its restructuring proposal would be ready by September or October. Those projections were made when Wall Street was criticizing United for dragging its feet on drafting a comeback plan. In particular, analysts noted that US Airways, the seventh-largest carrier, required only eight months to prepare a restructuring plan and emerge from bankruptcy protection after it filed for Chapter 11 last summer. United's optimism also coincided with the start of the busy summer travel season, a critical time for airlines. United, like its competitors, suffered a sluggish start to the year because of terrorism fears, the war in Iraq and the outbreaks of severe acute respiratory syndrome, or SARS. In hindsight, analysts said that Mr. Tilton's bullishness might have been more an effort to build optimism about United's fortunes among customers and investors, rather than to provide a working timetable. In any case, the latest shift in timing puts United back pretty much to its initial estimate, made at the time it filed for bankruptcy protection, that it would emerge in early 2004. In court testimony yesterday, James Sprayregen, United's lead bankruptcy lawyer, said the main reason for the delay was the uncertain atmosphere surrounding the airline industry, which is expected to lose $8 billion this year on top of steep losses in 2002 and 2001. Airlines have enjoyed strong traffic this summer, and United has accumulated a healthy cash balance, which stood at $2.3 billion in July. But executives throughout the travel industry widely expect sluggish bookings to resume after Labor Day. "It still remains to be seen whether the revenue recovery will be short-lived or long-lived," Mr. Sprayregen said. Earlier this year, United obtained $2.56 billion in wage and benefit concessions from its unions, after asking the court to impose them if union members did not agree. It has cut costs and routes, and has been involved in negotiations with the airports it serves, its bondholders and the leaseholders on its airplanes in an attempt to save more money. The most important milestone facing the airline is its new application to the Air Transportation Stabilization Board for $900 million in federal loan guarantees, which would provide the centerpiece of its financing plan to emerge from bankruptcy. United's bankruptcy filing followed the stabilization board's rejection of the airline's initial application for loan guarantees, which the board criticized as incomplete and based on overly rosy assumptions. United updated that application twice during the stabilization board's deliberations, as competitors complained that United was being unrealistic. This time, United officials have been told the board wants to see just one version of a plan, people close to the discussions said. But forecasts about the future direction of the industry are proving tough to pin down, given the uncertain economic climate, these people said, giving United a reason to wait. The airline has not decided when it will submit a plan, Mr. Sprayregen said yesterday. It most likely would submit proposals simultaneously to the stabilization board, its creditors and the bankruptcy court. Despite United's caution, Kevin P. Mitchell, chairman of the Business Travel Coalition, representing business travelers and corporate travel departments, said that United's latest move could cause his members to lose faith in the airline out of frustration with its pronouncements. For example, United insisted after its bankruptcy filing that it had to create a separate low-fare carrier. It has since stepped back from that plan, which was nicknamed Starfish. "It looks like they're lurching from one tactic to another, from one strategy to another," Mr. Mitchell said. Another issue facing the airline is whether it needs to take action regarding its four employee pension funds, which have an unfunded liability of $6 billion to $7.5 billion. The plans cover roughly 145,000 employees and retirees. Not all of the pension funds are in equally bad shape. At the end of 2001, the most recent period with information available, the ground employees' plan was about 99 percent funded, the pilots' plan was 98 percent funded, and the administrative employees' plan was about 93 percent funded, according to documents at the Labor Department. However, the flight attendants' plan was only 88 percent funded, and all those levels almost assuredly have fallen because of the decline in the stock market last year, experts said. People inside and outside the company said United was considering options that included postponing some of its pension contributions, contributing its own stock to the pension plans, freezing benefit accruals, and terminating one or more of its pension plans entirely. In addition, United is one of several airlines seeking pension relief through proposed legislation that would exempt all the major airlines from the rules governing pension funding. Such a bill is pending in the House, but it is considered a long shot. While proponents say the airlines have unique problems that merit special relief, others say that giving pension relief to the airlines would prompt other troubled industries to demand relief as well, leading to further pension deficits and putting benefits at risk. Other airlines have been allowed to take extraordinary measures to cope with their pension obligations. US Airways won court permission to cancel its pilots' plan, which guaranteed a high level of benefits, and replace it with a version that was less secure. Northwest Airlines won government approval to contribute stock of its Pinnacle Airlines unit to its pension plan, in lieu of cash. Although United does not have a subsidiary comparable to Pinnacle, it could use its new shares after reorganization to help shore up its employee pension plans. That could meet with employee resistance, given their experience with the employee stock ownership plan that was wiped out by bankruptcy. And if United wanted to make a significant stock contribution - more than 10 percent of pension fund assets - it would have to get special approval from the Labor Department. United could also conserve cash by postponing some of its annual pension contributions. Such postponements are regulated by the Internal Revenue Service, which allows any pension plan to waive up to three annual contributions in any 15-year period. The waivers do not come automatically. The I.R.S. has tightened its requirements in recent years. Companies must now post collateral for the amount waived, and for any waiver over $1 million, the I.R.S. consults with the agency that insures pensions on whether the collateral is adequate. That agency, the Pension Benefit Guaranty Corporation, has tightened its standards as well, after being left holding unusual assets like airport gates and buildings after previous pension defaults. United is not facing a cash shortage yet, however, despite its pension deficit. It was able to avoid making any cash contributions in 2001, 2002 or in the first half of this year, because the plans built up large "credit balances" during the stock market boom of the late 1990's. Pension rules allow actuaries to book a pension fund's stock market gains as if they were, in fact, cash contributions by the sponsoring company. If the stock market then falls, these accounting entries remain on the books, where they may be used in subsequent years to offset the contributions the company would otherwise have to make. United has disclosed that it expects to use up the remainder of its credit balances in the second half of this year, and that it might have to contribute $4.2 billion to its various pension funds by the end of 2008. http://www.nytimes.com/2003/08/30/business/30JETS.html?ex=1063291395&ei=1&en=6718c037813449fa --------------------------------- Get Home Delivery of The New York Times Newspaper. Imagine reading The New York Times any time & anywhere you like! Leisurely catch up on events & expand your horizons. Enjoy now for 50% off Home Delivery! 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