Air NZ unfazed as United teeters on edge of bankruptcy

By NZPA

Monday 2nd December 2002

Air New Zealand says it's "business-as-usual" for its relationship with Star Alliance partner United Airlines, as the giant American airline teeters on the edge of bankruptcy.

United is likely to file for bankruptcy within the next two weeks unless it can soon get a new wage-cut deal from reluctant mechanics and a crucial federal guarantee of a $US1.8 billion ($NZ3.6 billion) loan, sources familiar with the matter said.

Mechanics at United, the No. 2 US airline, last week rejected $US700 million in proposed pay cuts over 5-1/2 years. The rejection sharply increased the odds of bankruptcy as a $US375 million debt payment comes due tonight, New Zealand time.

United is the key airline in the Star Alliance global grouping to which Air NZ belongs.

"All the Star members acknowledge the importance of United to the Alliance, but they are going through their own business recovery programme at the moment and (Air NZ involvement) is not required," Air NZ spokeswoman Rosie Paul said.

" It's not our issue at all."

Media reports from the United States said that United's parent UAL Corp is seeking $US200 million ($NZ405.18 million) in loans from its partners in the Star Alliance, to help raise the money it needs to avoid a bankruptcy filing.

Other Star Alliance members include Air Canada, Deutsche Lufthansa AG, All Nippon Airways Ltd, Viacao Aerea Rio-Grandense SA or Varig, BMI British Midland Airways Ltd and Singapore Airlines Ltd.

The debt payment due tonight is on aircraft-backed securities called Enhanced Equipment Trust Certificates -- publicly-held debt that has better protection generally and under US bankruptcy law than other forms of credit.

There is a 10-day grace period, however, for United to make the payments to creditors without being considered in default.

In a bankruptcy proceeding, issues must be resolved within 60 days, according to section 1110 of the federal code, and after that lessors and financiers have the right to take back their planes, engines and spare parts.

During the grace period on the EETCs that runs until December 12, United will work feverishly to get a new deal with union mechanics and will again press its case to federal officials weighing the loan guarantee, sources said.

United, based in Elk Grove Village, Illinois, recently secured agreements for wage cuts of $US5.2 billion from the leadership of five unions as part of a financial recovery plan. That plan is a cornerstone of its loan guarantee application, which is being considered by the Air Transportation Stabilisation Board.

That government board was established last year to help airlines struggling financially with the fallout of the September 11 hijack attacks.

Even though there still may be time for a new agreement with mechanics, analysts said on Friday it was highly unlikely United could avoid bankruptcy.

"Time is running out for UAL to come up with a restructuring package to go to the ATSB to secure a $US1.8 billion loan guarantee," said Blaylock & Partners analyst Ray Neidl, who cut his investment rating of UAL to "sell" from "hold."

"We had expected the memberships of all the unions to approve the changes," Mr Neidl said.

"With this setback, it looks like a bankruptcy filing cannot be avoided."

Ratings agency Standard & Poor's on Friday cut its long-term credit ratings for UAL and United to its third-lowest "junk" grade other than default.

The airline is bleeding about $US8 million in cash daily.

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