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United Airlines to raise $2.25 billion in bonds, rolls back plan to cut work hours
May 6, 2020
(Reuters) – United Airlines Holdings Inc (UAL.O) said on Wednesday it plans to raise $2.25 billion through a bond offering amid a coronavirus-linked slump in air travel demand, and backtracked on a controversial plan to cut working hours for thousands of employees.
A union representing more than 25,000 United Airlines aircraft and passenger service workers filed a lawsuit on Tuesday seeking an injunction against the cuts, alleging the plan violated the terms of government payroll aid.
United has said the lawsuit was “meritless” and the reductions, due to start on May 24, were in compliance with the terms of its $5 billion in federal assistance and its collective bargaining agreements.
However, in a memo to affected staff made public on Wednesday, the airline said a 25% reduction in work hours for full-time employees would now be optional, and that any volunteers would still retain full-time status.
“Given our continued need to cut costs across the entire company, this proposed program will only be successful if we have a high rate of participation,” Chief Operations Officer Greg Hart said in the memo.
U.S. airlines are collectively burning more than $10 billion in cash a month because of the coronavirus pandemic, an industry trade group said on Wednesday, forcing a rush to raise capital and cut costs.
Chicago-based United has accepted U.S. government payroll aid that bans job or pay cuts before Sept. 30.
However, United and other carriers have warned that the aid does not fully cover their payroll costs, and with demand unlikely to recover to pre-crisis levels by the fall, they are looking at ways to start reducing costs as they prepare to downsize in October.
United said on Monday it planned to cut at least 3,450, or 30%, of its management and administrative workers on Oct. 1, and has told pilots to brace for changes as well.
The airline’s bond offering will be made in two tranches that will mature in 2023 and 2025, with the proceeds earmarked to repay a $2 billion term loan and for general corporate purposes.
Delta Air Lines (DAL.N) expects to have $10 billion in liquidity in June, up from $6 billion in March, while American Airlines (AAL.O) expects liquidity at $11 billion in the second quarter, up from $6.8 billion in the first.
United Airlines shares were down 1.6% at $23.73 in early trading.