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United Airlines hails bank's debt financing offers

United Airlines' parent company said it has secured new commitments from banks for up to US$3 billion in debt financing that should enable it to emerge from Chapter 11 bankruptcy protection late this year or early 2006.

While the financing is not yet final, UAL Corp hailed the revised proposals as a strong endorsement of the new business plan it formulated this summer even as the steep increase in fuel prices continues to squeeze carriers' bottom lines.

The commitments from the four financiers -- Citibank, JP Morgan Chase & Co, Deutsche Bank and GE Commercial Finance -- were disclosed as the Elk Grove Village, Illinois-based airline updated its status in a filing on Thursday with federal bankruptcy court.

United said it registered a US$274 million net loss for last month. That pushed its losses to US$2.8 billion this year and more than US$7 billion since it entered bankruptcy in December 2002.

CFO Jake Brace said that the lenders are willing to provide more than the US$2.5 billion United sought testifies to the resilience of its new business plan even amid daunting conditions for airlines. He said United is continuing to negotiate the cost and terms of the financing, but has fully underwritten offers it could put into place now if it so chose.

United has not yet publicly disclosed its new business plan or laid out its strategy for returning to profitability for the first time since 2000. Brace said only that it would be filed in the "not too distant future" with its reorganization plan.

"This validates our business plan and demonstrates that despite the fact that the industry environment has gotten tougher, the United business plan can attract even more all-debt exit financing than it could last winter," Brace said in an interview.

Despite its long streak of money-losing, airline analyst Mike Mooney said United remains a worthy investment risk for the banks because of several strengths: its international route network, strong US hub structure, long-term labor deals in place and the shedding of its multibillion-dollar pension obligations.

"It's a tough business right now, and certainly one can critique the overall success of United's management team -- the amount of time they've spent in bankruptcy," said Mooney of the Boyd Group in Evergreen, Colorado. "But United has a beautiful franchise. The banks see the opportunity to step in on that, which puts them in a very preferred position assuming there is a successful emergence."

The banks had tentatively agreed in January to provide up to US$2.5 billion in debt financing, but that was before soaring fuel prices forced United to devise a new business plan. Oil prices, now topping US$67 a barrel, have risen more than 50 percent this year.

The company attributed the latest monthly loss to US$350 million in reorganization expenses -- mostly from renegotiating leases on some of its aircraft. It said its monthly operating profit more than doubled to US$113 million from US$51 million a year earlier, despite fuel costs that increased by US$127 million. Passenger unit revenue rose 9 percent over July last year.
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