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United May Try to Amend Jet Leases

August 03, 2004|From Reuters

United Airlines said Monday that it might try to renegotiate aircraft financing deals it has made since entering bankruptcy protection, in an effort to cut operating costs.

If the financing arrangements cannot be renegotiated, United said lessors or other financiers might choose to repossess the aircraft, which is their right under bankruptcy law.

United, a unit of UAL Corp., said because the government recently rejected its application for backing of a reduced $1.1-billion loan, the additional cost cutting needed to attract private financing would include reworking the aircraft financing agreements.

Before Monday's announcement, United had estimated it would cut its annual aircraft leasing costs by about $900 million by 2005, an amount it could not possibly have achieved outside of court protection.

AMR Corp.'s American Airlines, by contrast, achieved just $175 million in savings on its deals with suppliers and lessors as it narrowly avoided Chapter 11 in April 2003.

Other parts of United's business also are under review, including heavily underfunded pension plans. Unions have filed lawsuits against company officers challenging the airline's decision not to make any more pension contributions until the company exits bankruptcy.

United must now arrange nongovernmental guaranteed exit financing to get out of Chapter 11 protection, which it entered in December 2002. In a regulatory filing, it said if a significant number of aircraft were repossessed, financial and operational performance could be hurt.

United also said in its filing that in the wake of the government loan guarantee rejection Chief Executive Glenn Tilton had decided voluntarily to reduce his salary to $712,500 from the $845,500 he had been receiving since April.

Tilton has cut his pay several times since becoming CEO at United in the fall of 2002 with a salary of $950,000.

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