Shifting course yet again, United Airlines said Friday that it did not expect to emerge from Chapter 11 bankruptcy this year after all, blaming an uncertain economic outlook for prolonging its work on a restructuring plan.
United officials told a US Bankruptcy Court in Chicago that the airline now expected to leave Chapter 11 protection sometime in the first half of next year. United, a unit of UAL Corp, is the nation's second-largest airline behind American.
Last spring, executives at the airline, including its chief executive, Glenn Tilton, projected that United would emerge from bankruptcy by this December, a year after United sought court protection. At that time, the airline also said its restructuring proposal would be ready by September or October.
Those projections were made when Wall Street was criticizing United for dragging its feet on drafting a comeback plan. In particular, analysts noted that US Airways, the seventh-largest carrier, required only eight months to prepare a structuring plan and emerge from bankruptcy after it filed for Chapter 11 protection last summer.
Summer travel
United's optimism also coincided with the start of the busy summer travel season, a critical time for airlines. United, like its competitors, suffered a sluggish start to the year due to terrorism fears, the war in Iraq and the impact of the SARS outbreak.
In hindsight, analysts said that Tilton's bullishness may have been more an effort to boost optimism about United's fortunes among customers and investors, rather than provide a working timetable. In any case, the latest shift in timing puts United back pretty much to its initial estimate, made at the time it filed for bankruptcy, that it would emerge early next year.
In court testimony on Friday, James Sprayregen, United's lead bankruptcy attorney, said the main reason for the delay is the uncertain atmosphere surrounding the airline industry, which is expected to lose US$8 billion this year, on top of steep losses in 2002 and 2001.
Cash balance
Airlines have enjoyed strong traffic this summer, and United has accumulated a healthy cash balance, which stood at US$2.3 billion in July. But executives throughout the industry widely expect sluggish bookings to resume after the Labor Day holiday.
"It still remains to be seen whether the revenue recovery will be short-lived or long-lived," Sprayregen said.
Earlier this year, United obtained US$2.56 billion in wage and benefit concessions from its unions, after asking the court to impose them if union members did not agree. It has cut costs and trimmed routes, and has been involved in complicated negotiations with the airports it serves, its bondholders and the leaseholders on its airplanes in a bid to save more money.
The most important milestone facing the bankrupt airline is its new application to the Air Transportation Stabilization Board for US$900 million in federal loan guarantees, which would provide the centerpiece of its exit financing.
No guarantees
United's bankruptcy filing followed the stabilization board's rejection of the airline's initial application for loan guarantees, which the board criticized as incomplete and based on overly rosy assumptions. United updated that application twice during the stabilization board's deliberations, amid competitors' jabs that it was being unrealistic.
This time, United officials have been told the board wants to see just one version of a plan, said people with knowledge of the discussions. But forecasts about the future direction of the industry are proving tough to pin down, given the uncertain economic climate, these people said, giving United a reason to wait.
The airline hasn't decided when it will submit a plan, Sprayregen said on Friday. It most likely would submit proposals simultaneously to the stabilization board, its creditors and the bankruptcy court.
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