United Airlines has pushed back its target for emerging from bankruptcy from June 30 to late summer as it awaits verdicts from Washington on its application for a federal loan guarantee and on pension reform legislation, a source familiar with the matter said Thursday.
The nation’s No. 2 carrier intends to propose a new target date to U.S. Bankruptcy Judge Eugene Wedoff before its monthly bankruptcy hearing on Friday, said the source, speaking on condition of anonymity.
United spokeswoman Jean Medina declined to comment on the prospective delay, which was first reported in Thursday’s editions of The Wall Street Journal and The New York Times.
The airline said when it filed for Chapter 11 bankruptcy in December 2002 after incurring more than two years of heavy losses that it expected to spend about 18 months in bankruptcy. It spent 2003 slashing labor costs, negotiating new aircraft leases and obtaining $2 billion in financing from J.P. Morgan Chase and Citigroup, and told the court in January it was on track for a June 30 exit.
But the Elk Grove Village, Ill.-based carrier still has several issues to resolve.
The Air Transportation Stabilization Board, which rejected United’s bid for a federal loan guarantee just before it filed for bankruptcy, has not ruled on its three-month-old request for a $1.6 billion guarantee. The exit financing that United obtained hinges on the loan guarantee being approved.
United also is in urgent need of pension relief before it can emerge and is hoping for congressional passage soon of a bill that would effectively grant airlines a two-year delay in pension payments. Under current law, United parent UAL Corp. faces $4.8 billion in required payments to its pension plan trusts by the end of 2008.
A cash crunch for United and other carriers has been worsened lately by a sharp jump in the cost of jet fuel, the airline’s second-biggest expense after labor. Jet fuel now costs more than $1.03 a gallon, up 50 percent from two years ago — an increase costing United hundreds of millions of dollars a year.
Also, United faces the risk of financial and other consequences from a court squabble with some of its employees. At the behest of the flight attendants’ union, an independent examiner was appointed last month to look into whether the airline misled its employees about its plans to reduce retiree health care benefits. The examiner is to report to the bankruptcy judge on Friday.
