The fortunes of United Airlines appear to be picking up as it wins some battles in its efforts to exit bankruptcy later this year.
As United forges ahead with its rebranding and marketing effort, the airline has won victories in its long journey to leave the protection of the bankruptcy court, getting out of about half of $500 million in airport bond debt in a closely watched case and winning Congressional relief on pension fund payments.
With the passage of a measure granting pension-fund payments relief to major companies, United may save as much as $4.1 billion over the next five years. Both the airline and its unions praised the measure, which should make it easier for United to gain a $1.6 billion federal loan guarantee.
The Air Transportation Stabilization Board wanted United's pension status clarified and reduced before approving the guarantee, which the airline needs if it is to emerge from bankruptcy this year. The pension bill, says independent financial analyst Vaughn Cordell, makes United "the big winner". However, the approximate $1.9 billion in annual cash savings for United and other majors on their pension costs seems likely to be cancelled out by rising fuel costs, he says.
The airport debt in question applies to so-called special facilities bonds, which for years have been sold by airport operators on behalf of airlines, which then repay the debt. United had asked the judge overseeing its case to free it from having to repay this debt at several airports.
Bondholders had argued that their financial agreements were so-called true leases. If this bond debt were treated as a lease, and if the airline wants to stay in the building, the bondholders would get paid. However, if a court were to classify it as just another type of financing, the bondholders would become just another party in the pool of unsecured claims.
Standard & Poor's analyst Kurt Forsgren says the ruling might have a chilling effect by forcing airports themselves to finance new terminals - instead of allowing airlines to take on the debt service. The court did rule that United will have to pay about $260 million in Denver airport bonds.
United also won formal bankruptcy court approval to end its relationship with Atlantic Coast Airlines (ACA), one of its major feeders at Washington and Chicago, ending long-running uncertainty. ACA is turning itself into an independent low-fares carrier. United has also agreed on new feeder rates for other carriers at its hubs.
DAVID FIELD WASHINGTON
Source: Airline Business
