As Leases are Broken by the Court, Lessors Lose

The Chicago Tribune, in a John Schmeltzer story, pointed out that, "United leases about 450 of its 550 jets." Those leases, now that United is operating under Chapter 11 'protection,' are subject to revision, or even dismissal, if United can make a case to the judge that the ailing airline needs to get out of its contracts.

If Bankruptcy Judge Eugene Wedoff allows United to terminate all the leases it wants, some major players could be facing big hits on their balance sheets. Whirlpool, one lessor, didn't wait, and posted a $29 million Q4 loss, already writing off its leases for four 757s, with a value of $43 million. Disney and the Bank of New York have also acknowledged their multi-million-dollar mistakes, and would probably like Wedoff to let them take their planes and lease them to someone else. Even with an airliner market in the dumps, half a loaf is better...

Other companies are still in denial, hoping against hope that their lease agreements won't turn to dust, either as result of the judge's action, or the ultimate collapse of the airline. The Trib says CIT Group Group, for instance, holds United leases worth $96 million on paper; speaking of paper, it also holds $41 million in United's bonds. That company's writeoffs, should they happen, will happen only after the legal wrangling is over.

Altria Group [the company formerly known as "Philip Morris"] wants 16 of its two dozen 757s back; their request is on the judge's desk.

FMI: www.ual.com