Air NZ climbs away as alliance partner teeters

Air New Zealand says it is "business-as-usual" for its relationship with Star Alliance partner United Airlines, as the giant American airline teeters on the edge of bankruptcy.

United is likely to file for bankruptcy within the next two weeks unless it can get a new wage-cut deal from reluctant mechanics and a crucial federal guarantee of a US$1.8 billion ($3.6 billion) loan, sources familiar with the matter said.

Mechanics at United, the No 2 US airline, last week rejected US$700 million in proposed pay cuts over 5 1/2 years. The rejection sharply increased the odds of bankruptcy as a US$375 million debt payment becomes due.

United is the key airline in the Star Alliance global grouping.

"All the Star members acknowledge the importance of United to the alliance, but they are going through their own business recovery programme at the moment and [Air NZ involvement] is not required," Air NZ spokeswoman Rosie Paul said.

"It's not our issue at all."

Reports from the United States said that United's parent UAL Corp is seeking US$200 million ($405.18 million) in loans from its partners in the Star Alliance, to help raise the money it needs to avoid a bankruptcy filing.

Other Star Alliance members include Air Canada, Deutsche Lufthansa AG, All Nippon Airways, Viacao Aerea Rio-Grandense or Varig, BMI British Midland Airways and Singapore Airlines.

The debt payment that has fallen due is on aircraft-backed securities called Enhanced Equipment Trust Certificates - publicly held debt that has better protection generally and under US bankruptcy law than other forms of credit.

There is a 10-day grace period, however, for United to make the payments to creditors without being considered in default.

In a bankruptcy proceeding, issues must be resolved within 60 days, according to section 1110 of the federal code, and after that lessors and financiers have the right to take back their planes, engines and spare parts.

During the grace period on the trust certificates (it runs until December 12), United will work feverishly to get a new deal with union mechanics and will again press its case to federal officials weighing the loan guarantee, sources said.

United, based in Elk Grove Village, Illinois, recently secured agreements for wage cuts of US$5.2 billion from the leadership of five unions as part of a financial recovery plan. That plan is a cornerstone of its loan guarantee application, which is being considered by the Air Transportation Stabilisation Board.

The US Government board was established last year to help airlines struggling financially with the fallout of the September 11 attacks.

Even though there still may be time for an agreement with mechanics, analysts said it was unlikely United could avoid bankruptcy.

Ratings agency Standard & Poor's has cut its long-term credit ratings for UAL and United to its third-lowest "junk" grade other than default. The airline is bleeding about US$8 million in cash daily.

- AGENCIES