United Airlines has pushed back its targeted exit from bankruptcy from this summer until fall, ensuring that its complex restructuring will now last close to three years — twice as long as anticipated.
The latest delay was formally acknowledged Friday when a U.S. bankruptcy court judge approved an agreement between United and its lenders that extends its temporary financing by three months until Sept. 30.
The new loan from J.P. Morgan Chase & Co., Citigroup Inc., CIT Group Inc. and GE Capital eases some terms for UAL Corp.’s United, including reducing interest rates, waiving the January monthly earnings benchmark that it missed and lowering its minimum cash requirement to $600 million from $750 million.
The improved terms represent a vote of confidence for United even though it continues to be unprofitable after 26 months in bankruptcy, reporting a widened fourth-quarter loss of $664 million and a $1.6 billion deficit for 2004.
“The changes to the financing agreement reflect our belief that United has made significant progress to date in lowering its costs and executing on its business plan,” said Bill Repko, managing director at J.P. Morgan Chase.
But United still is confronted with daunting challenges to emerge from Chapter 11, which it entered in December 2002 with expectations of an 18-month restructuring.
The Elk Grove Village, Ill.-based carrier has so far been unable to get two of its biggest unions to agree to long-term, lower-cost contracts and risks labor turmoil if it has its own terms imposed in court. The ground workers’ contract expires on April 11 and the mechanics’ on May 31.
A May 11 trial looms on its plan to eliminate traditional pensions unless consensual deals are worked out.
Additionally, retired pilots are fighting the company’s plan to reduce pension payments by as much as 40 percent. Judge Eugene Wedoff told the two sides Friday that he would consider the case next month. He ordered United to continue paying the challenged benefits in the meantime, thwarting the airline’s plan to cut back starting March 1.
Besides labor, United still is plagued by the same high fuel costs, low fares and crowded industry that have exacerbated its bankruptcy struggle.
Chief financial officer Jake Brace cited the ongoing pension deliberations as the reason for pushing back the bankruptcy exit target but cited the amended debtor-in-possession financing as an endorsement of United’s “solid business plan.”