CHICAGO - The board of the UAL Corp., the parent company of United Airlines, voted last night to allow management to file for bankruptcy protection. The vote came shortly after bankers and lawyers for the company agreed on the terms of a loan that would allow the airline to keep flying while in bankruptcy court, shielded from its creditors.
The bankruptcy filing could come as early as this morning, according to people briefed on the company's plans. The 12- member board met at United's headquarters here for a final review of the financing package.
United, the world's second-largest airline, would get $1.5 billion of so-called debtor-in-possession financing as it operates under bankruptcy protection. Of that, $800 million would be available 10 days after the filing, according to people briefed on the terms of the deal. Four lenders - Citigroup, J.P. Morgan, Bank One and the CIT Group - would each provide $300 million, and Bank One would provide an additional $300 million to reach the total. That separate package provided by Bank One, which issues the credit cards linked to United's frequent-flier program, would make up a sizable part of the amount available after 10 days.
A bankruptcy protection filing by United, which is 55 percent employee-owned, would be the largest by any airline, and one of the largest overall, as measured by the value of its assets. Those are estimated at $24.2 billion, almost the same amount that Adelphia Communications had when it marched into bankruptcy court in June. Adelphia's filing is the sixth-largest in the United States.
Until yesterday, it appeared that the lending arm of General Electric Corp. would be involved in the deal, but there were disagreements between United and GE Capital over the terms, said people briefed on the arrangements. GE Capital apparently wanted United to agree to terms related to loans and aircraft lease contracts that GE Capital already had in place with the airline. United refused because that would have set a precedent for having to negotiate with other creditors on similar loan and leasing arrangements before entering bankruptcy court, these people said.
That friction with GE, as well as some last-minute deal-making with Bank One on the separate $300 million package, pushed the financing talks through the night on Saturday and well into yesterday afternoon.
"United and GE couldn't resolve those issues among themselves," said one person briefed on the talks. "They didn't need to resolve it, frankly. Everything was lined up."
This person said the involvement of the CIT Group, which joined the final discussions several days ago, meant that GE's money was not needed.
Debtor-in-possession financing gives United enough cash to keep up its operations in the early stages of a bankruptcy restructuring, and the lenders get first claim on the airline's assets, ahead of other creditors. Later in its restructuring, United would have to look for exit financing.
United's union leaders had tentatively agreed in the last month to give up $5.2 billion over 5 1/2 years as United sought concessions to bolster its application for a $1.8 billion federal loan guarantee. But industry experts say United will have to seek much deeper concessions, which could involve asking the bankruptcy judge to get rid of existing labor contracts and the current governance structure, which allows representatives of the pilots union and machinists union to sit on the board.
Lawyers for the company will ask the bankruptcy judge on the first day of the filing to allow the airline to keep up its operations at the current levels. The court will then assemble a creditors committee within a week or so. That committee, driven by a desire to see debts repaid, will have a large hand in the governance of the company.
GE Capital and Boeing Capital, the financing arm of the Boeing Corp., are two of United's largest creditors and will both undoubtedly seek to be on the committee. GE Capital has about $1.9 billion tied up in United, and Boeing has about $1.3 billion, according to people briefed on those arrangements. That money is linked to loans, aircraft leases and investments.
UAL was pushed to the edge of bankruptcy Wednesday when the Air Transportation Stabilization Board, a federal panel set up to dole out financial aid to the airline industry after the Sept. 11 attacks, rejected the company's application for a $1.8 billion loan guarantee. A person familiar with that decision-making process said that United's estimate of its future revenue was two to three times the number that analysts for the board came up with.