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.

FMI: www.ual.com