UAL Rises 19% as Bankruptcy D-Day Looms
|
|
Shares of UAL UAL, parent of United Airlines, jumped 19% in Monday’s session after the second-largest carrier unveiled its long-awaited restructuring plan, which it needs to secure a government-backed loan to stave off bankruptcy. But in buying shares of the beleaguered carrier, investors are making a risky bet. UAL has rallied 73% from its October low and could be forced to file for bankruptcy protection by Dec. 2, according to the company — just 7 1/2 trading sessions away. With a $375 million debt payment due on Dec. 2, the company says it will be forced into bankruptcy if this restructuring plan isn’t enough to win it a $1.8 billion loan guarantee from the Air Transportation Stabilization Board. Ultimately, UAL buyers are either covering their shorts, or buying into the idea that the federal government will not allow UAL to fold. Even those who have given UAL a break in recent weeks, like Ray Neidl, airline analyst with Blaylock & Partners, who recently upgraded the stock to hold, have their doubts. “Unlike most other observers, we do not believe a filing is inevitable, although it remains probable,” he wrote in a report to investors. “Unless the company can pull a rabbit out of its hat, a bankruptcy filing appears more likely.” Some, like the Business Travel Coalition, which represents business travelers, maintain the ATSB should grant UAL’s request because it needs to ensure the stability of the airline industry. “A UAL bankruptcy [could] produce a 20% to 25% cost gap between UAL and [AMR AMR unit] American Airlines … forcing American to seek bankruptcy,” said the BTC in its analysis of the ATSB application. “Never in our commercial history has the U.S. had two major airlines — two powerful national economic engines — in bankruptcy at the same time.” |