Reuters report on UAL agreement

[Guest GDR]

I imagine that GE Capital will be making a

similar deal with AC. With this, the new Aeroplan agreement, and a reduced cost structure it looks like the restructured AC will be able to do well.

Potential UAL, GE debt deal to save millions

Wed May 14, 2003 03:39 PM ET

By Kathy Fieweger

CHICAGO, May 14 (Reuters) - A proposed complex debt restructuring deal between bankrupt United Airlines and General Electric GE.N units on 51 planes will net the airline access to a $16 million credit line and substantial cash flow savings of about $200 million over five years, court papers show.

The potential deal between United and GE, one of its largest creditors and aircraft lessors, would avoid costly and time-consuming litigation as the world's second largest airline winds its way through a complicated Chapter 11 bankruptcy.

Other U.S. airlines, wading through financial morasses of their own, are watching the court-mediated reorganization.

United, a unit of UAL Corp UALAQ.OB , filed a motion late last week with the bankruptcy court asking for approval to enter into the so-called "global settlement" with GE's Capital Corp. unit and other GE entities called PK Air US, Inc. and PK AirFinance US, Inc.

The money under the new debtor-in-possession credit line would be available to United starting May 29 and running through July 28, 2003. UAL has a much larger $1.5 billion DIP facility from four lending institutions other than GE. Those are Citigroup Inc C.N , J.P. Morgan Chase & Co. Inc. JPM.N , CIT Group Inc CIT.N and Bank One Corp. ONE.N .

FUTURE FUNDS

In the court papers, the airline said GE may play a critical role in recovery from bankruptcy but did not specify how, other than identifying a "potential willingness to finance a significant portion of the debtor's future capital needs."

Eric Jones, a spokesman for GE Capital, declined to comment on any potential role for the big financing company in United. A hearing on the matter is scheduled for May 23.

A United spokesman was not immediately available to comment.

In the case of rival US Airways, which recently emerged from Chapter 11 bankruptcy protection, GE Capital also provided debtor-in-possession financing, agreed to loan and aircraft financing concessions and offered equity financing for the purchase of regional jets. In return, it received a 5 percent stake in the reorganized airline and 3.6 million shares of preferred stock. GE Capital is also heavily involved in bankrupt Air Canada AC.TO .

After amassing billions of dollars of losses and faced with no access to capital markets and a recalcitrant labor force, United filed the largest aviation bankruptcy in history on December 9, 2002. It followed US Air's move in August of 2002.

GE units are among UAL's largest creditors and financed or guaranteed the money for 82 planes prior to its bankruptcy filing. Since then, GE entities transferred their interests in 16 aircraft and an additional 15 were guaranteed by a GE affiliate, over which negotiations continue.

As part of the proposed settlement, United would transfer its equity interests in some Boeing 777s to GE Capital or its affiliate, which will then lease the planes back to United. Deals also involve 757s and Ranger aircraft and involve a junior tranche of 2001-01 Enhanced Equipment Trust Certificates. Specific terms were not disclosed.

Existing leases for Airbus jets will remain intact and unchanged, United said.

Separately, UAL filed a motion to reject the leases on eight other Boeing 737-322 planes and five parked Boeing 747-422s and related engines, financed by leveraged lease transactions on behalf of a variety of equity participants.