KAREN WALKER / WASHINGTON DC
United Airlines reached a tentative cost-cutting agreement last week with its last union, but industry observers warn the struggling carrier is not yet out of danger from bankruptcy.
Analysts JP Morgan and ratings agency Standard & Poor's (S&P) remain sceptical that the airline will have sufficient cost-cutting agreements in place to win approval for an all-important $1.8 billion US government loan guarantee, without which United will almost certainly have to resort to Chapter 11 bankruptcy protection.
United announced last week it had reached a tentative agreement with the International Association of Machinists (IAM) union representing its mechanics and ramp workers. It was the last in a series of concession deals reached with all of the carrier's unionised and non-unionised employee groups.
The IAM has agreed to labour cost savings totalling $1.5 billion over five-and-a-half years, but union members still have to approve the deal through a ballot.
The pilots, meanwhile, have voted to cut costs by $2.2 billion over the same period - the only firm agreement in place so far. Flight attendants have yet to vote on a $412 million cost-cutting tentative agreement, and non-union employees are being asked for $1.3 billion in concessions.
But those agreements still fall at least $400 million short of the $5.8 billion minimum in labour savings believed necessary for the government's Air Transportation Stabilization Board (ATSB) to approve the loan guarantee.
"The sum of reported labour concessions falls short of the $5.8 billion identified in UAL's ATSB application by several hundred dollars," says JP Morgan's Jamie Baker, adding he has not changed his conviction of an ATSB rejection followed by an early-December bankruptcy filing.
S&P's Philip Baggaley concurs: "The ATSB may still find United's business plan does not reduce operating costs sufficiently to overcome the airline's losses and cash drain."
United chief executive Glenn Tilton, meanwhile, said last week during a Star Alliance chief executive board meeting in Rio de Janeiro that the carrier was talking to its Star partners about liquidity contributions. Lufthansa is believed to be most likely to help, but it is unclear to what extent.
Source: Flight International
