United: Feud Costs $200,000 Per Month

WASHINGTON_United Airlines Inc. complained to a bankruptcy judge that it is racking up financing charges of $200,000 a month because an investor group is blocking the airline's bid to consolidate its control over 14 aircraft.

The airline, a unit of UAL Corp., has offered to pay $292 million to the investor group for securities it holds that amount to mortgages on the aircraft. But the investor group, represented by Wells Fargo Bank Northwest N.A., has rebuffed the offer for five months, saying the securities are worth $383 million.

That delay, the airline said in court papers, has proved costly. United sought and received a $350 million loan increase earlier this year "for the express purpose" of buying the aircraft-related securities. Because it hasn't been able to consummate the deal, it said, its lenders have charged it a "ticking fee" of $200,000 a month since last month.

"The time is fast approaching when this issue must be resolved," United said in court papers filed this week in U.S. Bankruptcy Court in Chicago. The airline asked the court's chief judge, Eugene Wedoff, to rule that United's offer is reasonable and to "nullify" Wells Fargo's efforts to block the purchase.

"If the current litigation is not resolved, the legal status of Wells Fargo's claims - and United's aircraft - will soon travel into uncharted waters" once the airline emerges from Chapter 11 bankruptcy reorganization, United said. The airline is expected to exit bankruptcy proceedings early next year.

Wells Fargo attorneys weren't available for comment Friday. In court papers, Wells Fargo has asserted that United hasn't lived up to the terms of the aircraft financing deal and should be required to pay the investors not only the $292 million purchase price but also a 9 percent interest rate.

"At all relevant times United got the benefits from this matured financing," Wells Fargo said. "United now seeks to pay off the Class A Certificates at a rate less than market during the pendency of the bankruptcy proceedings - a rate much lower than what United pays under its DIP financing." DIP financing refers to a loan obtained by a company in bankruptcy reorganization, or a "debtor in possession."

The dispute involves 14 aircraft that United acquired in 1997 under a financing deal in which securities were sold to the public, "ultimately backed by mortgages on the 14 aircraft," United has said in court papers. United has recently been buying back the securities from other investors, but holders of Class A certificates issued in the deal have balked.