CHICAGO -- The increased likelihood of a bankruptcy filing by United Airlines prompted a heavy sell-off of its stock Friday, even as management made a last-ditch effort to rescue an urgent cost-cutting plan.
Wall Street analysts said it appears all but certain United will soon be forced to restructure under bankruptcy-court protection as its cash reserves dwindle. The grim outlook became drastically worse after the carrier's mechanics late Wednesday rejected a key component of its financial recovery plan.
The plan is considered vital to United's application for a $1.8 billion loan guarantee from the federal government. Without the loan guarantee, United has said it would have no choice but to file for bankruptcy.
Shares in United parent UAL Corp. plunged $1.12, or 31 percent, to close at $2.51 in heavy trading on the New York Stock Exchange. The stock has lost 92 percent of its value since before the attacks of Sept. 11, 2001.
United, the world's second largest airline, has been struggling since the attacks to reverse multimillion-dollar losses each day. The carrier has reduced service and has laid off 20,000 of workers in the face of a weak economy and sharply-reduced spending by business travelers.
United said Friday officials have restarted negotiations with union leaders to try to fashion a wage-cuts package that would be palatable to its mechanics - the last group resisting proposed steep reductions in wages and benefits.
But with hefty debt payments and other challenges looming, there's almost no time left for United to find the financial backing it needs to avoid filing for bankruptcy-court protection from its creditors.
"The mechanics' vote makes bankruptcy virtually inevitable for United and UAL," said credit analyst Philip Baggaley of Standard & Poor's, which downgraded the company's long-term corporate debt rating deeper into junk status.
Other airline experts concurred, and United reiterated its intention to file for protection under Chapter 11 of the federal bankruptcy code if it can't get mechanics to swiftly go along with their roughly $600 million share of a targeted $5.2 billion in companywide labor cuts over 5 1/2 years.
"We need to reach that amount that we already agreed upon (with a coalition of union leaders) if we're going to get a government loan guarantee," United spokesman Jeff Green said.
Even if mechanics vote again quickly and opt to accept wage cuts, as their US Airways counterparts did in reversing course this fall, United's application for a loan guarantee was put in jeopardy by Wednesday's vote setback. A ruling is expected any day on the guarantee, which cash-poor United says it needs in order to obtain $2 billion in private loans.
United's pilots insisted the airline still has a chance to avoid bankruptcy and urged the federal panel to grant the loan guarantees.
"We are convinced that the process for an out-of-court recovery for United Airlines is not over," United's pilots union said in a statement. "We encourage all parties to continue their hard work in solving the open issues."
The airline faces a tough decision on whether it has sufficient cash to make a $375 million debt payment Monday, although under a grace period it could push that back to Dec. 16. Its cash reserves are believed to be around $1 billion and on a pace to run out this winter.
The other impending deadline for United is Dec. 31, when wage-cutting agreements accepted by its pilots and other employee groups expire unless mechanics join the others in ratifying concessions.
The effects of a bankruptcy filing likely would have a profound impact on the airline industry.
A bankruptcy court judge is likely to slash labor and other costs even more severely than United has proposed, prompting cutbacks and new revenue strategies among its competitors. United's employee stock ownership plan also would be endangered, as would workers' remaining investments in the 55 percent employee-owned carrier.
There is likely to be no immediate impact on passengers, however. If it is forced to resort to a bankruptcy filing, United has said it will continue flying its normal schedule - just as US Airways has been doing since its Chapter 11 filing in August.
While news of a possible bankruptcy has unsettled United passengers and frequent-flier mile holders, it was business as usual on Friday in the midst of a busy Thanksgiving holiday travel weekend. At Chicago's O'Hare International Airport, the carrier's hometown hub, one longtime United customer said she's not overly worried about the airline's flying future.
"All businesses have rough times, you just have to ride them out," said Carol Wuertzler, who was headed out with her husband on a trip to Florida. "We've lived with them through all the tumultuous times of the last year.
"If everyone deserts them, they're really in trouble."
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