United Air CHICAGO >> United Airlines' stock lost more than a quarter of its value today on investor fears that a crippling labor vote setback has dashed its efforts to avoid a Chapter 11 bankruptcy filing.
stock plunges
The airline's bankruptcy filing
is now seen as "virtually inevitable"By Dave Carpenter
Associated PressShares in United parent company UAL Corp. plummeted $1.12, or 30 percent, to $2.51 in heavy trading on the New York Stock Exchange after sinking as low as $1.72 -- not far off the more than four-decade low of $1.42 reached last month.
Following United mechanics' rejection Wednesday of pay cuts that are a key element of its multibillion-dollar financial recovery plan, Standard & Poor's slashed its credit ratings Friday on UAL and said the company appears almost out of options to keep out of bankruptcy.
"The mechanics' vote makes bankruptcy virtually inevitable for United and UAL," S&P credit analyst Philip Baggaley said.
United, still trying to carry out its restructuring without going to bankruptcy court, immediately reopened talks with union leaders and was trying today to negotiate a modified agreement that could be put to a new vote, spokesman Jeff Green said.
But a revised version would still have to come up with the mechanics' roughly $600 million share of United's targeted $5.2 billion in labor cutbacks, Green indicated. "We need to reach that amount that we already agreed upon (with a coalition of union leaders) if we're going to get a government loan guarantee," he said.
Normally, it would take about a week before a new vote is held, union officials said.
United reiterated yesterday that it will be forced to file for Chapter 11 bankruptcy if it doesn't receive a $1.8 billion federal loan guarantee that would enable it to obtain $2 billion in urgently needed private loans. The Air Transportation Stabilization Board is expected to announce its decision on the loan guarantee any day.
If it is forced to resort to a bankruptcy filing, United has said it will continue flying its normal schedule. Another major airline, U.S. Airways, has been operating normally since filing for bankruptcy in August.
But United and CEO Glenn Tilton are running out of time to get mechanics on board and preserve tentatively agreed-to labor cuts, which the government board is requiring as a stipulation of any federal backing.
The nation's second-biggest carrier faces a $375 million debt payment Monday, although under a grace period it could push that back to Dec. 16. Its cash reserves are believed to be around $1 billion and dwindling as its operations lose an estimated $7 million a day.
The other looming deadline for United is Dec. 31, when wage-cutting agreements accepted by its pilots and other employee groups expire unless all the airline's workers have agreed to concessions. The mechanics are the only holdouts.
One district of the Machinists union, representing 24,500 baggage handlers, customer-service workers and other United employees, approved 6 percent pay reductions Wednesday as their share of the proposed labor package.
The district representing 13,000 mechanics turned thumbs down on a tentative agreement for 7 percent wage cuts, with 57 percent voting "No."
"Although the airline will reopen negotiations with its mechanics' union, it appears unlikely that a revised agreement can be negotiated and approved before United has to make a large debt payment," Baggaley said in his note to investors.
"Even if an agreement is reached, the Air Transportation Stabilization Board is not likely to approve a business plan that scales back promised labor concessions from levels already challenged by some as being insufficient to help correct United's high operating cost structure," he said.