United Airlines parent UAL Corp., the second-largest U.S. carrier, said Thursday it will receive $3 billion in financing arranged by JPMorgan Chase & Co. and Citigroup Inc. to help the company exit bankruptcy in February.
The announcement confirmed a United statement in August that it had won bank commitments for $3 billion. United is the biggest carrier at Denver International Airport and employs 5,400 people there.
The loan will have a term of six years and an interest rate of 4.5 percentage points over the London interbank offered rate, UAL said in a statement. Elk Grove, Ill.-based United will use the funds to pay back other debt and make payments required when it emerges from court protection.
UAL, which has been in bankruptcy court almost three years, has been trying to cut costs in an effort to return to profitability. Rising fuel costs and competition from low-fare carriers such as Southwest Airlines Co. have left the largest U.S. airlines with $38.2 billion in losses over the past five years.
“The fact that they managed to get the financing is pretty significant,” said Helane Becker, a Benchmark Co. analyst.
While the rate on the financing was favorable, Becker said she had hoped the company would seek some equity financing so that it wasn’t coming out of bankruptcy with more debt.
Deutsche Bank and General Electric Co.’s commercial finance unit had also made bids to provide the exit financing, the airline said. United chief financial officer Jake Brace told employees in a taped call Thursday that the final decision was difficult because of competition among the bidders that resulted in four “compelling and attractive proposals.”
“The company has proven its ability to navigate through difficult and volatile circumstances while continuing to improve its operations and financial performance,” JPMorgan vice chairman James B. Lee said in the statement.
Separately, the bankruptcy court in Chicago ruled Thursday that United must keep making certain pension payments to its retired pilots. The payments may be put in escrow while the company appeals the decision, said United spokeswoman Jean Medina. United has been seeking to end its workers’ pensions, and all except the pilots’ plan have been terminated with liabilities shifted to a federal pension insurer.
Medina said United is reviewing its options. The Air Line Pilots Association and a group representing the retired pilots argued that United shouldn’t have stopped making the payments this month because the pensions haven’t been terminated.
The Denver Post contributed to this report.
