United Airlines will delay repayment of US$920 million of debt as it waits on a federal loan guarantee request that hinges in part on its mechanics accepting a new agreement on pay cuts.
The 13,000 mechanics and cleaners will vote Dec. 5 on revised concessions after rejecting a previous proposal last week. That will leave the world's second-biggest airline a week to repay some of its debts before a grace period ends Dec. 12.
"We still expect they will find a way to successfully restructure outside of bankruptcy," said Mark Egan, managing director at Reams Asset Management, which holds US$28.5 million of the debt originally due yesterday. "But we wouldn't be surprised if they in fact file" for court protection.
Rejection of the US$700 million in savings sought from the mechanics may unravel US$4.5 billion in concessions by other workers that are contingent on all employees participating. The airline needs the cuts to obtain a federal loan guarantee that would help it raise US$2 billion in new loans and avoid bankruptcy.
United parent UAL Corp said that last month's agreement on refinancing US$500 million owed to the German bank Kreditanstalt fuer Wiederaufbau is contingent on repaying US$375 million in separate debt. Today's due date for repaying the German bank would be extended until 2007 once payment is made on the other securities also due today, UAL spokesman Jeff Green said.
The company said it has a grace period of 10 days on most of both debt amounts and also is in the grace period on repaying an additional US$45 million of debt. A bankruptcy filing is still possible, Green said. UAL is waiting for a decision from the Air Transportation Stabilization Board on its request for a US$1.8 billion guarantee.
The company's US$200 million of 9 1/8 percent notes maturing in 2012 rose US$0.05 to about US$0.15 on the dollar from US$0.10 on Friday, traders said. The notes were as high as US$0.65 on the dollar at the start of the year.
The Chicago-based company and union leaders agreed over the weekend on a new wage-cut plan that allows mechanics to choose which of their vacation days will be unpaid, a sticking point for many of the workers.
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