United Airlines parent UAL Corp. this month said it finalized a $3 billion all-debt exit-financing package, the latest step taken in the company's march toward completing a lengthy bankruptcy reorganization.
Arranged by J.P. Morgan and Citigroup, the deal was achieved with "very competitive terms" and "is a validation of three years of hard work," said UAL CFO Jake Brace.
At the beginning of its court-supervised bankruptcy restructuring, Delta Air Lines also received approval for a new financing package. Marketing partner Northwest, also in bankruptcy, last week said it would seek to jettison existing labor contracts should management and union leaders fail to negotiate concessions.
The bankruptcy court overseeing UAL's restructuring this week will review the company's commitment letter to the financial backers. UAL still is planning to complete bankruptcy proceedings by Feb. 1, 2006."United's restructuring positions the company to compete successfully with the strongest airlines and to confront ongoing industry volatility," said Glenn Tilton, UAL chairman, CEO and president.
Separately, United this month reached new credit card processing agreements with J.P. Morgan and Paymentech. The airline expects a "seamless transition" in January 2006, when the deal with its current processor expires, enabling uninterrupted credit card payment options for travelers. "The rates are more favorable than any recent processing contract in the airline industry," the company said. "UAL is not expected to face significant incremental liquidity demands, in sharp contrast from recent announcements at other carriers."
The new credit card processing agreements, as well as an extended co-branded card deal with Chase Bank, will be reviewed this week during a bankruptcy court hearing.
Meanwhile, Delta Air Lines this month received final approval for a $2.2 billion financing package intended to keep it afloat during bankruptcy reorganization. The package includes $1.9 billion in debtor-in-possession financing arranged by GE Commercial Finance and Morgan Stanley—of which $1.4 billion already was borrowed by Delta following initial Chapter 11 proceedings—and continued assistance from American Express. Delta CFO Edward Bastian said the financial support "indicates the confidence that investors have in our business plan and our ability to execute that plan."
Meanwhile, as expected, the judge in Delta's bankruptcy case has authorized Delta to assume obligations covered by Delta Connection agreements with SkyWest and Atlantic Southeast Airlines. Stemming from Delta's sale of ASA to SkyWest, both ASA and SkyWest will continue as Delta Connection affiliates through 2020.
At Northwest, management last week filed a Section 1113(c) motion with court overseeing its bankruptcy case. The motion requests that the court nullify existing labor agreements if the company is unable to negotiate new collective bargaining deals with unions. Northwest said it has targeted $1.4 billion in annual labor cost reductions as part of an overall plan to cut costs by $2.5 billion annually.
The airline last week also detailed planned capacity cuts for the remainder of the year, as well as reduction estimates for 2006
(see story, page 1).