Sorry about that. Here is the link, I found it at, and the article from the Wall Street Journal.
THE MIDDLE SEAT
By SCOTT MCCARTNEY
The Wall Street Journal
December 18, 2002
For United, Liquidation Is a Very Real Possibility
After filing for Chapter 11 bankruptcy protection, United Airlines Chief Executive Glenn Tilton went out before employees and TV cameras and proclaimed "business as usual."
That's exactly what the CEO of an airline under bankruptcy protection needs to say so that customers don't stop buying tickets. But beyond flights continuing as scheduled right now, everything has changed. Mr. Tilton and directors of parent company UAL Corp. no longer work for shareholders -- they report to a federal judge and answer to creditors. Employees no longer own control of the company, creditors do.
More importantly, United faces a very short timeframe to make drastic operational changes, and there is serious uncertainty whether the company can pull off all the magic needed in the next two or three months. Rather than "business as usual," there's a very big chance -- greater than most people realize -- that United could end up being liquidated.
For starters, United is a lot worse off than it lets on. In its bankruptcy-court filings, the carrier notes that after Sept. 11, 2001, it raised $2.89 billion by drawing down its credit line, arranging some interim financing and receiving both federal airline bailout cash and huge tax refunds. About a year later, that money was gone. Nearly $3 billion -- poof!
"Unfortunately, the debtors burned this cash while attempting to implement their recovery plan and now need more liquidity to survive," United's bankruptcy attorney, James Sprayregen, wrote in the company's bankruptcy petition.
What's more, rather than the $7 million or $8 million a day United had previously said it was losing, Mr. Sprayregen disclosed that United now is losing as much as $20 million a day.
Secondly, United is basically starting from scratch on a business plan, even though it has been in a steep spiral for two years now. United's bankruptcy filing makes the rather startling admission that lenders looking at providing possible bankruptcy financing to United were telling the company that its business plan was woefully inadequate and wouldn't work. That's the same business plan that United was betting its future on before the Air Transportation Stabilization Board. Though bankers were telling the company last fall the plan wouldn't fly, the company kept hoping that the ATSB would see it differently.
Third, by the time ATSB came to the same conclusion as the banks, United was over a barrel with those same banks. In order to get Bank One, Citigroup, JP Morgan Chase and CIT Group to offer up $1.5 billion in debtor-in-possession financing, United had to agree to some rather Draconian terms. People familiar with bankruptcy practices say the terms probably could have been more favorable to the company had it negotiated the DIP financing last summer, when it was in better shape and appeared to be less of a risk. By winter, United was desperate -- and lending it any money was a huge risk.
Bank One protected its $300 million infusion by securing it against, among other things, revenue it would pay to United for frequent-flier miles issued through its co-branded credit card. The other banks, which are adding $500 million initially, secured their loans against everything United has of value -- everything. If United defaults, the banks can sell off its highly coveted Pacific and Atlantic routes and its landing slots at New York's La Guardia and Washington's Reagan National airports, not to mention airplanes United owns, spare parts, flight simulators and gate leases. That, United's own filing notes succinctly, "will spell the end for the debtors."
The lenders agreed to give United only $800 million of the $1.5 billion up front. The rest comes down the road if United meets crucial financial goals. And this is the toughest nut of all, where the future of the airline really rests.
Before it can get the rest of the money, United has to achieve positive cumulative cash flow -- earnings before interest, taxes, depreciation, amortization and rent. Considering that it's losing something like $100 million a week right now, that's a huge hurdle requiring drastic change.
And the change has to come quickly: Since the measure is cumulative, starting from the day the carrier filed for bankruptcy, losses right now mean United has to generate even more positive cash flow next spring. It has to erase all the operating losses before it burns through the $800 million it is getting now. Good luck. If it doesn't meet the goal, United gets no more money from the banks, unless things get renegotiated. Without more financing, it likely would have to shut down.
Those conditions "require that the cost savings begin virtually immediately," the bankruptcy filing says. "In short, absent significant cost reductions in the next few months, the debtors will not be able to access the capital they need to survive."
All this would point to the need for swift and decisive action. That may be beginning, since United recently spelled out to employees that it needs probably twice the wage cuts it previously negotiated, and it began breaking leases with creditors. Still, one wonders where the swift and decisive action is? Rather than rapid-fire action, Mr. Tilton has talked about long-term, pie-in-the-sky plans like resurrecting Shuttle by United --an expensive, risky proposition that didn't exactly save the day the first time around and isn't likely to help get United over that "cumulative" hurdle in the next few months.
What is clear is that over the past two years, United's management has been anything but swift and decisive. Mistakes such as the failed attempt to purchase US Airways Group Inc. and a foray into the private jet world drained needed cash, as did a crippling pilot slowdown, a showdown with mechanics and the expensive contracts that resulted from both. And United has had four CEOs in the past four years. Is the leadership there to save the company?
"They haven't exhibited any ability to take advantage of any opportunity that has come their way in the past two years," notes longtime industry consultant Mo Garfinkle.
United has to decide quickly whether it will be able to come to agreements with unions on new pay rates, benefits and work rules that will work for the airline. If not, it will ask the bankruptcy judge to hold an emergency hearing on union contracts and decide himself what they should be. Right there, that's a decision that could make or break the company, and it has to be done probably in the next few weeks.
At the same time, United has to essentially do the same thing with all the creditors who financed airplanes. The airline needs to pay them less, but the creditors have the option of taking back their planes and trying to lease them elsewhere. These negotiations, say people familiar with United's situation, are going to be enormously complicated because United used extremely elaborate financing deals to pay for planes. Institutions, or individuals, spread over three or four continents may own a single plane. Working out all these deals often takes months in bankruptcy court -- but United doesn't have lots of time.
Officially, United's management has 120 days to come up with its own reorganization plan, though that is often extended. After that, creditors can put forward their own plans. But the company really doesn't even have that long because of the terms of the DIP financing. The $800 million infusion likely wouldn't last much more than three months in this slow season for airlines. Besides, since it has to earn back whatever operating losses it tallies now, United really can't spend all $800 million and have enough money to survive until it gets the rest of the $1.5 billion. Sometime in January or February, United better turn the corner.
It should be anything but "business as usual" at United right now.
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