Shares in United Airlines fell sharply yesterday amid investor fears that the airline could follow US Airways and file for bankruptcy protection to accelerate restructuring.
Last week United confirmed it had hired bankruptcy lawyers, adding to investor nervousness about its financial stability. United has applied for $1.8 billion (€1.84 billion) of federal loan guarantees as part of a scheme set up after September 11th to assist struggling airlines, but has not had a public response.
US Airways gained conditional approval last month for its $900 million application from the Air Transportation Stabilisation Board (ATSB).
However, there are significant doubts about whether United's application to the ATSB goes far enough in terms of squeezing employee concessions, and it has acknowledged it needs to get agreements from all its unions.
United has also been reluctant to hand over warrants to the government as part of the loan scheme. The loan board demanded significant warrants in granting payments to America West and US Airways.
Ms Susan Donofrio, analyst at Deutsche Bank, yesterday put the odds of United not getting their loan guarantee at 80-85 per cent. "We think that this would pave the way for a possible bankruptcy."
The problems at United have been compounded by concerns about its leadership.
Mr Jack Creighton, chief executive, plans to stand down in October. A number of leading airline executives have admitted they had been approached, but have declined. That has fuelled expectations that an outsider could be appointed in coming weeks.
US Airways' filing on Sunday promises much short-term pain for its suppliers, lenders and employees, as well as shareholders facing the prospect of worthless paper following the planned reorganisation. A restructuring which shrinks the capacity of the sixth-largest US airline by revenues by around 15 per cent is expected to benefit Delta Air Lines, its largest rival on the US east coast.
"US Airways will continue to operate while we complete our financial restructuring, and our customers should be confident that we will continue service to the more than 200 communities in our network," US Airways chief executive Mr David Siegel said.
The airline's liabilities had reached approximately $7.83 billion, exceeding its assets by about $20 million. But experts said it was likely to survive.
As part of the Chapter 11 filing, Texas Pacific Group (TPG) will receive a 38 per cent equity stake in return for investing $200 million as part of a debtor in possession financing.
Mr David Bonderman, TPG's co-founder and a director of Ryanair, has already led successful rescue plans for Continental Airlines and America West. His involvement has raised speculation that he may seek to accelerate consolidation in the US market.
"The motive of TPG needs to be explored, including whether this could lead to some sort of merger of US Airways," said Mr Mike Miller, head of Miller Air Group, a consultancy. He added: "This looks like the best planned \ bankruptcy I have seen in 20 years . . . The fact they already have financing available is remarkable. Usually you enter bankruptcy seeking financing."
- (Financial Times Service)
