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Thursday, 5 December, 2002, 21:43 GMT
Bankruptcy looms for United Airlines
United Airlines plane taking off
United is on the brink of filing for bankruptcy
United Airlines is heading for bankruptcy according to the credit rating agency Standard & Poor's (S&P).

S&P cut its rating of the airline to "default" after the airline failed to gain financial support from the government.

We are working very hard at figuring out where we go next

Jeff Green, UAL spokesman

The airline had been seeking a loan worth $1.8bn (1.15bn) from the Air Transport Stabilisation Board (ATSB).

Shares in United Airlines' parent company UAL were suspended from trade in New York for most of the day on Thursday, and when trading resumed they plunged $2.12, or 68%, to close at $1.

"The ATSB's decision will almost certainly lead to a Chapter 11 (bankruptcy) filing by UAL and United," said S&P analyst Philip Baggaley.

On the brink

UAL shares were suspended at the start of trade in New York "pending news", but UAL spokesman Jeff Green said no statement was due, adding: "we are working very hard at figuring out where we go next".

United Airlines
84,000 staff
1,800 flights a day
$889m loss in Jul-Sep
The ATSB rejected United's approach on Wednesday, saying that the airline's business plan was "not financially sound".

The decision was backed on Thursday by President Bush, with White House spokesman Ari Fleischer saying that "the president respects the decision of the ATSB".

Job worries

United Airlines is still talking to its bankers about the loans it needs to cover imminent debt repayments, and to allow it to keep flying while it enters Chapter 11 - a form of bankruptcy designed to give a firm space to restructure as a going concern.

Whatever the outcome, massive job losses are expected among the airline's 84,000 staff.

There is not expected to be any immediate impact for passengers: flights would continue, as normal, after any bankruptcy filing although cutbacks to save costs might be made in the future.

There was some good news for United from the German airline Lufthansa, its partner in the Star Alliance network.

"We are in talks with United. We are figuring out how we can help our partner," a spokesman said

'Irresponsible' decision

United's nightmare scenario is only the latest facet of the crisis gripping the US aviation business ever since last year's September 11 terror attacks.

Carriers lost about $10bn that year, and could well match that in 2002.

One of United's rivals, US Airways, filed for bankruptcy in August.

News of the ATSB's decision brought an angry response from the company's workforce, most of whom have agreed to big pay cuts and other concessions in a bid to keep the airline flying.

"We are extremely disappointed... and do not agree with the board's analysis of United's business plan nor the timing of its announcement," said Captain Paul Whiteford, head of the airline's pilots' union.

On Thursday, United's machinists cancelled a vote on whether to accept a pay cut as part of a rescue package.

They said a vote would be pointless following the rejection of the loan, and described the ATSB's decisions as "irresponsible".

United employees control more than 50% of voting rights in the company, and Chapter 11 would almost certainly rob them of that, along with most of the value of the holdings of the company's shareholders.

 WATCH/LISTEN
 ON THIS STORY
David Field, Airline Business magazine
"To invest in airlines you have to be taking a lot of drugs or be really dumb"
The BBC's Stephen Evans
"A formal declaration of bankruptcy can't be far away"
See also:

05 Dec 02 | Business
04 Dec 02 | Business
02 Dec 02 | Business
29 Nov 02 | Business
27 Nov 02 | Business
19 Nov 02 | Business
07 Nov 02 | Business
13 Aug 02 | September 11 one year on
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