Fears Are Growing About United
United Airlines, the largest carrier at Los Angeles International Airport, tried Friday to calm jittery travelers amid growing fears that it is headed toward a Chapter 11 bankruptcy filing.
Chicago-based UAL Corp., United’s parent, also tried to calm nervous investors -- but without success. Its shares lost nearly one-third of their value Friday.
The turmoil came in the wake of Wednesday’s rejection of a pay cut by United’s mechanics union. The mechanics’ acceptance of a reduction in pay is key to United’s securing a financial lifeline from the federal government.
The union’s move prompted Standard & Poor’s on Friday to cut its corporate credit rating on UAL and United to CCC-minus, only a few notches from levels that indicate a loan default or bankruptcy.
“The mechanics’ vote makes bankruptcy virtually inevitable for United and UAL,” said S&P; credit analyst Philip Baggaley.
The credit downgrade and a large loan payment due Monday weighed heavily on Wall Street, where UAL shares plummeted $1.18, or 32.5%, to $2.45 on the New York Stock Exchange during an abbreviated holiday session. Earlier in the day the stock sank to $1.72, not far off the more than four-decade low of $1.42 reached last month.
In light of the company’s growing financial problems, United officials pledged Friday that Thanksgiving holiday travelers returning home Sunday would not be affected. They also vowed to maintain normal operations in case of a bankruptcy filing.
Another major airline, US Airways, has been operating since filing for bankruptcy reorganization in August.
United spokesman Jeff Green said the company has a plan on how it will communicate news of a bankruptcy filing to travel agents and customers, but said such an event “is not going to affect our flight schedule at all.”
That’s the word that travel agent Zulemi Iida at Fiesta Travel % Cruises in Hollywood got when she called United to check on the status of customers who had paid for tickets on United flights to San Francisco, New Orleans and other destinations next week. The United ticket agent Iida spoke with acknowledged that a bankruptcy filing was “possible,” but said the airline probably would continue service without interruption.
“ ‘We do not expect to stop flying. Tell your clients not to worry. We’re not going to shut our doors,’ ” Iida said she was told.
Just to be certain, Iida had the United agent reconfirm each of her customers’ ticket reservations.
At the United ticket counter at LAX, agents also were telling customers that a bankruptcy filing shouldn’t affect plans for booking a trip.
Not everyone was reassured. “I’ve been giving away tickets I got with my [United frequent flier] miles because I’m afraid they’re going to go bankrupt,” Manhattan Beach resident Michelle Hodges said. “I gave my brother two tickets to Maui and my dad two tickets to Paris.”
Hodges, a human resources manager for a pharmaceutical firm, said she also has been flying on Continental Airlines more often lately.
United has said it would forced to file a Chapter 11 petition if it doesn’t receive a $1.8-billion federal loan guarantee that would enable it to obtain $2 billion in private loans. The Air Transportation Stabilization Board is expected to announce its decision on the loan guarantee soon.
The airline is counting on $5.2 billion worth of concessions from its labor unions and employees -- belt-tightening that would show federal officials that it is serious about cutting costs as part of a proposed recovery. The decision by the mechanics’ union members to reject their share of the concessions could jeopardize the agreements already approved by other labor groups. United employees own about 55% of the company’s stock.
United faces a $375-million debt payment Monday, although a grace period could push the deadline back to Dec. 16. The company’s cash reserves are believed to be around $1 billion and dwindling as its operations lose an estimated $7 million a day.
Green said the company would announce Monday whether it would make the debt payment or take advantage of the grace period.
Times staff writers Glenda McCarthy and Ron White contributed to this report. Associated Press was used in compiling it.
