Industry Uncertainty Blamed
United Airlines' hopes
for an early and dramatic exit from Chapter 11 bankruptcy have been
dashed by continued industry uncertainty. Back in December, United
had hoped to pull out of its financial nosedive long before the
18-months originally projected. It's the biggest corporate
bankruptcy in American history and it looks like it'll continue for
some time to come.
UAL bankruptcy attorney James Sprayregen said at a court hearing
the company will submit an updated business plan to the Air
Transportation Stabilization Board, but gave no timeframe. "It
still remains to be seen whether the revenue recovery will be
short- or long-lived," Sprayregen said.
Kevin Mitchell, chairman of the Business Travel Coalition and a
critic of United's tactics, said of the once-again rejigged
timetable: "On one level, it's yet another data point of United's
going from here to there."
While United's revenue climbed 8.1 percent in July, there's a
great deal of uncertainty about what will happen as travel demand
tapers off after the Labor Day weekend.
United is working with the ATSB to replace those aspects of the
company's original loan guarantee bid that were rejected as
inadequate in December. The airline has built its application
around a plan that relies on big-time cost savings and strategies
to boost revenue and capture business travel. But United isn't
talking much about its plans at this point.
The company's new application would include $2.5 billion in
labor concessions and related work rule savings over the next six
years, more than $700 million in savings from renegotiated aircraft
leases and other mortgages that are close to being finalized, along
with a new revenue outlook.
The uncertainty
regarding United's business relationship with Atlantic Coast
Airlines (Nasdaq:ACAI - news) and municipal bond litigation are
other outstanding issues, along with a special provision of the
bankruptcy code known as Section 1110, which deals with the
rejection of various aircraft leases.
Moody's Investors Service late Thursday lowered the ratings on
some United debt backed by the company's fleet. The agency said it
downgraded certain Equipment Trust Certificates and Enhanced
Equipment Trust Certificates due to uncertainties about sufficient
cash flow and increased potential for principal loss to debt
holders.
"All of these issues and others are highly relevant to United's
business plan," Sprayregen said. Sprayregen said United will soon
submit a court motion to extend the period in which the company has
exclusive rights to file its reorganization plan.