No company is an island -- and if UAL ( UAL) sinks, it will have broad implications for creditors, competitors and suppliers. Now that the federal government has denied the parent of United Airlines' $1.8 billion request for a government-backed loan, UAL is expected to file for Chapter 11 in the coming weeks. UAL's bankruptcy filing would be the largest in the history of commercial aviation. The ripple effects will be felt by competitors like AMR's ( AMR) American Airlines unit as well as UAL's creditors and suppliers, many of which will never see payment for services rendered. A bankruptcy judge will ultimately determine who gets paid and how much they get, but an early look shows that a UAL bankruptcy would pinch business at some of America's largest companies. Before being halted, UAL shares fell 59% to $1.28 Thursday on the news.
"We do not believe management has prepared its employees for Chapter 11," wrote Jim Higgins, analyst for Credit Suisse First Boston, in a research report to investors. "With significant internal dissension within and among labor groups, and labor/management distrust considerable, getting labor concessions to stabilize UAL may be difficult."
in capacity would represent a 3-cent hit to UTX's full-year earnings per share," von Rumohr said.
No matter what happens, suppliers such as Boeing and United Technologies are sure to face a bumpy road ahead, simply because the airline industry is slashing capacity to meet slumping demand. And with a war in Iraq looming, oil prices seem likely to spike and air travel demand will further diminish, exacerbating the problem.
rivals offering rates in the $2,800 to $2,900 range, we expect UAL to significantly renegotiate its regional contracts." But how this will affect Atlantic Coast and SkyWest is still up for debate. Deutsche Bank analyst Susan Donofrio maintained her buy rating on the stocks, telling investors that additional growth opportunities for United would offset the possibility of lower payments. In her eyes, the larger carrier could turn to the smaller flyers to maintain share as it pares its own capacity. Like many of the issues surrounding UAL's bankruptcy, the impact remains to be seen, but investors took a bullish stance Thursday, raising Atlantic Coast 19.6% to $12.94 and lifting SkyWest 6.4% to $13.83. AMR, meanwhile, rose 10% to $7.74.