United Airlines talks to avoid Chapter 11

United Airlines, once the world's largest airline, was last night continuing talks with unions aimed at agreeing wage cuts which might stave off a bankruptcy filing.

The airline is haemorrhaging cash at the rate of $7m a day and has to make a $375m debt payment today. Although United has the right to push that deadline back a fortnight, observers believe it could file for protection from its creditors as early as this week.

Despite a weekend wage-cutting deal with its flight attendants, United Airlines has not yet agreed the reduction to its wage bill that might trigger a bailout by the US government. United has requested a $1.8bn federal loan guarantee, which would come under an emergency provision for the airlines after the 11 September terrorist attacks and would in turn open the way for a further $2bn of private sector loans. If it is not forthcoming, United said that bankruptcy would be virtually inevitable.

The government guarantee depends on United securing agreements from its employees on a total $5.2bn of wage cuts over the next five years. On Saturday its 24,000 flight attendants agreed pay cuts worth $412m over five years – but that deal means nothing, as long as the airline's mechanics continue to refuse demands for $600m of wage and benefit cuts on their part.

Yesterday, the airline was due to hold further talks with the International Association of Machinists and Aerospace Workers, but a union spokesman said the flight attendants' decision would have no bearing on their attitude. If the mechanics continue to hold out, United's existing pay-cut agreements with its pilots and other employee groups would lapse on 31 December, in effect, sealing the airline's fate.

The stock market is already signalling bankruptcy and the stock has lost 92 per cent of its value since the 11 September 2001 terrorist attacks. After losing $2.1bn last year, United is facing a similar or even greater loss in 2002.

Its difficulties mirror those of the industry as a whole after the terrorist attacks. Between them, the major US airlines are forecast to lose a total of $9bn this year after an $8bn deficit in 2001. United has slashed its payroll by a fifth to 80,000, and cut capacity by 17 per cent.

But long before the terrorist attacks, the airline was in difficulties as a result of weak management and pay rises well above the industry average, despite United's flagging performance.

A Chapter 11 bankruptcy would not mean the end of United. Passenger schedules would not be affected, and several airlines, among them Continental, have undergone the process, which involves a freeze on creditors' claims in return for a court-imposed restructuring, and emerged stronger for it. Last August US Airways, with which United vainly sought a merger last year, also sought Chapter 11 protection.