Bankruptcy fears hit United shares

Investors saw UAL Corp shares lose half their value within minutes of the opening bell at the New York Stock Exchange on Friday.

The 52.6% slump was short-lived, as dealers took advantage of the rock-bottom price and the stock inched back to $2.60, a 28% fall, by 1610 GMT.

But the bad news was enough for credit ratings agency Standard & Poor's to start writing the company's obituary.

Out of options?

"The mechanics' vote makes bankruptcy virtually inevitable for United and UAL," said S&P credit analyst Philip Baggaley, as the agency dropped the rating on UAL debt to a level which implies default is expected.

"Although the airline will reopen negotiations with its mechanics' union, it appears unlikely that a revised agreement can be negotiated and approved before United has to make a large debt payment."

A $375m payment is due on 2 December, although there is a 10-day grace period, and the airline is reportedly going through $7m a day out of a cash reserve totalling about $1bn on 21 November.

On top of that, Mr Baggaley said, the chances of receiving loan guarantees as part of the government bailout of the aviation industry were slim if the cutbacks were scaled down.

Searching for savings

United is still determined to stay out of the bankruptcy court - and entry into Chapter 11, the article of US bankruptcy law which protects a company from its creditors while it restructures.

"We intend to achieve the full labour cost savings included in our business plan," it said in a statement.

"Reaching our $5.2bn target is essential if we are to secure federally backed loans and avoid a Chapter 11 filing."

But the refusal to play ball on the part of the mechanics, after the rest of the company's workforce has signed up, puts that in jeopardy.

The airline had wanted them to accept a 6-7% pay cut in an effort to save $1.5bn in wages.