Reorganization plans of airlines

United Airlines has said it has agreed with its creditors’ committee to a 30-day extension, subject to court approval, of the period during which it can exclusively file a bankruptcy reorganization plan. The agreed extension is shorter than a recent request for a four-month extension by the No. 2 US airline, a unit of UAL Corp.. At a Friday court hearing, United’s bankruptcy attorney James Sprayregen said United agreed not to seek final approval of any business plan during those 30 days. The creditors’ committee agreed not to press any alternative restructuring strategies of its own during the period. United said its chief executive, Glenn Tilton, has pledged to include creditors in the company’s reorganization. Much of the morning’s hearing focused on United’s decision not to make more than $500 million in pension payments while in bankruptcy. In court papers this week, United said it likely will have to cancel and replace all of its pension plans, angering unions which had feared the airline would try to scrap the plans. It was the company’s most explicit statement yet about the future of its pension plans, although United said no final decision on the plans had been made. Judge Eugene Wedoff asked Sprayregen if the move to halt payments implied what he called a “de facto” decision by the airline to terminate the plans. Sprayregen said that was not the case, and that United believed it might be possible to make some sort of pension arrangement in cooperation with all of the parties involved. He said the airline was trying not to make what he called a “precipitous decision” on a highly charged issue, informs Daily Times. According to Reuters, A U.S. bankruptcy court judge on Friday granted United Airlines another 30 days of exclusivity, giving it until the end of September to file its own reorganization plan without competing plans from creditors. United, a unit of UAL Corp. (UALAQ.OB: Quote, Profile, Research) , had requested a four-month extension but reached an agreement with creditors on the shorter period. Lawyers for some of the airline's unions had opposed the 30-day extension so that outside input from the capital markets could be involved in the process. Judge Eugene Wedoff also approved changes to the carrier's debtor-in-possession financing, which will provide United with an additional $500 million to operate while it reorganizes. At a Friday court hearing, UAL attorney James Sprayregen said the airline agreed not to seek final approval of any business plan during those 30 days. The creditors' committee agreed not to press any alternative restructuring strategies during the period. Much of the hearing focused on United's decision to skip more than $500 million in pension payments while in bankruptcy. In court papers this week, United said it likely will have to cancel and replace all of its pension plans, angering unions which had feared the airline would try to scrap the plans. It was the company's most explicit statement yet about the future of its pension plans, although United said no final decision on the plans had been made. "It's a little early to talk about timelines," for making a decision, Chief Financial Officer Jake Brace told reporters. Wedoff asked Sprayregen if stopping payments implied a decision to terminate the plans. Sprayregen said United believed it might be possible to reach an arrangement with the parties involved. He said United was trying not to make a "precipitous decision" on a highly charged issue. The Association of Flight Attendants, which represents 21,000 attendants working for United, called on company management in a statement to meet its pension obligations. The Motley Fool publishes, that the story for bankrupt air carrier United Airlines (OTC BB: UALAQ) is a simple one: It doesn't have enough cash on hand to take care of all of its obligations. That, after all, is why it sits in bankruptcy protection. It has leasehold obligations on its planes to Boeing (NYSE: BA), General Electric (NYSE: GE), and a million other financing groups; it has operating expenses that continue to skyrocket as fuel costs surge. It has other sundry debts -- merchant liabilities, mostly. And yes, United Airlines has a total pension fund shortage of $8.3 billion to go along with scheduled payments of $725 million for 2004, $4 billion through 2008. So United came up with a plan: Cease funding its pension plans. Man, take a look at what's going on at United, US Airways (Nasdaq: UAIR), where liquidation is a rumor with some credibility attached, and Delta (NYSE: DAL), which has a brutal restructuring of its own. Don't even get me started on the disaster that is European aviation. This industry burns through shareholder equity like no one's business. United Airlines' management would dearly like to emerge from bankruptcy, and the process here is to work among all of the creditor classes to come up with a plan that will give the company financing and a capital structure that will allow it to operate. The other choice is liquidation -- not a great outcome. The problem in arranging financing is that those footing the bill in arranging financing aren't very interested in relaunching a business that will simply destroy more capital. United, like many companies before it, might be worth more to creditors broken up and sold for scrap than as an operating entity. So the company has to come up with a plan that shows creditors that it has a reasonable chance to gain a return in the event the company operates once again. A $4 billion cash obligation along with an $8 billion existing shortfall in United's pension plans make the case for continuing United as an operating company much tougher.

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