Trading of United Stock Halted

By Dave Carpenter
AP Business Writer
Thursday, December 5, 2002; 12:45 PM

CHICAGO -- Trading in United Airlines' stock was halted after it plunged 59 percent Thursday, a day after the world's second-largest carrier lost its request for government loan backing it said was needed to keep it out of bankruptcy.

The New York Stock Exchange said trading was stopped because of "pending news" regarding United. A spokesman for the airline said it had no plans for an immediate announcement, however, and said the exchange's wording was mistaken.

Before trading was stopped, shares in United parent UAL Corp. opened down $1.84, or 59 percent, to $1.28 -- their lowest level in more than 40 years.

Analysts said the Air Transportation Stabilization Board's rejection of United's request for $1.8 billion in federal loan guarantees Wednesday all but ensures a Chapter 11 bankruptcy filing. It would be the largest bankruptcy in airline industry history.

Chief executive Glenn Tilton tried to reassure passengers and United's 83,000 employees, saying, "Whatever course we chart, it should be emphatically clear that United will continue to fly."

But barring a dramatic turn of events, that course will almost certainly take it to federal bankruptcy court as soon as this week.

"We believe bankruptcy is inevitable," J.P. Morgan analyst Jamie Baker wrote in a note to investors Thursday.

"I can't imagine them avoiding it unless someone writes them a check for $2 billion," said Ray Neidl of Blaylock and Partners.

Cash-starved United has said for months that without government backing, it couldn't get the $2 billion private loan it needs to avoid bankruptcy. It faces $920 million in debt payments due next week, which would wipe out most of its cash.

Further sealing United's fate, its mechanics canceled a vote scheduled for Thursday on $700 million in wage cuts the carrier said it needed immediately to stay out of bankruptcy. Union leaders said the government board's decision had rendered the vote moot.

United's unions assailed the decision by the government panel, which was created last year to help the financially strapped airline industry recover after the Sept. 11 terrorist attacks.

"We were ready to partner with United, the union coalition and the government to return United Airlines into the nation's premier carrier," said Tom Buffenbarger, president of the Machinists' union that represents the 13,000 mechanics and aircraft cleaners who were to have voted. "Unfortunately, the United States government walked out on that partnership."

United traces its problems to a decline in passengers because of the faltering economy and the terrorist attacks, an increase in competition from smaller discount airlines and failed business strategies. It has lost more than $4 billion since the middle of 2000 and is on pace for an industry-record loss exceeding $2 billion for the second straight year.

The government board said that despite United's efforts to pare costs, "the business plan submitted by the company is not financially sound."

The board said United's plan "does not support the conclusion that there is a reasonable assurance of repayment and would pose an unacceptably high risk to U.S. taxpayers."

Tilton didn't say whether the company would file for bankruptcy or file a revised proposal.

Two of the three board members rejected United's request, while the third wanted to defer a decision until Dec. 9 to allow United to submit additional financial information.

"This is not just about costs," said one member, Peter Fisher, the Treasury Department's undersecretary for domestic finance, "it's about a business plan that is fundamentally flawed."

In bankruptcy, United's shares would probably become virtually worthless and it would lose control of its restructuring to a judge. The airline is 55 percent owned by its employees.

The airline was close to securing $1.5 billion in financing that would be needed to keep it operating in bankruptcy, according to a person familiar with United's situation, who spoke on condition of anonymity.

Some passengers flying United on Wednesday said the government should help it stay in business.

"We need the competition to keep the fares lower," said Courtney Burkholder, 31, of Lincoln, Neb., as she walked through Chicago's O'Hare International Airport. "Generally, it seems unfair that the airlines suffered for the terrorist attacks."

Only two major airlines, America West and US Airways, have gotten help from the board. But US Airways still ended up filing for bankruptcy protection in August.

Analysts say United will emerge from bankruptcy a smaller, changed airline, assuming it emerges at all.

"If they make peace with labor, they will come out of Chapter 11 stronger than they've ever been," said Darrell Jenkins, head of George Washington University's Aviation Institute.

Other airlines have survived bankruptcy, including America West and Continental.