United Airlines parent UAL Corp. today announced new agreements with lenders that provide the bankrupt company an additional $500 million in financing and extend its Chapter 11 bankruptcy reorganization to June 30, 2005. The company said the new agreements give it "additional flexibility" as it works to secure financing necessary for emerging from bankruptcy court protection.
UAL on Aug. 20 will seek court approval for the new agreements struck with existing lenders JPMorgan Chase, Citigroup and CIT, and new lender GE Capital. If approved, United's planned June 2005 emergence would come more than 30 months after it filed for bankruptcy in December 2002. The company originally targeted an 18-month restructuring.
"The willingness of lenders to participate in the amended debtor-in-possession following the denial of the federal loan guarantee reflects their confidence in our financial performance and ability to become more competitive by further improving our cost structure," said UAL CFO Jake Brace.
UAL also said the new agreements "effectively prohibit further pension contributions before exit" and hinted it may terminate the existing employee pension plans, as analysts have speculated. The company last week deferred a $72 million pension plan payment, raising concern within its unionized workforce
(BTN, July 19).
"In the absence of a federal loan guarantee, United's long-term business plan must have cash flow and liquidity levels that the capital markets are willing to finance," the company said. "Because existing pension plan contributions will remain a huge financial burden after exit, it is incumbent upon United to study all possible options."
United has lost more than $3.2 billion since entering bankruptcy court, with net losses exceeding $8.5 billion since the beginning of the business travel downturn in late 2000. It will report its second-quarter performance next week.