The airlines are now in such great trouble that they are going to their lenders and asking for better terms on their debt. It seems to be working. UAL (NASDAQ: UAUA), parent of United, says it has gotten an improved deal from some of its banks.
According to The Wall Street Journal, "The company said this week its lenders approved a waiver of the so-called fixed-charge coverage ratio covenant on its credit line through the first quarter of 2009." The ratio requires cash flow to stay at certain levels.
The banks are damned if the do and damned if they don't. Other large airlines will likely ask for similar deals. Banks have little options but to agree to improve lending terms.
The debt-holders at the major airlines know that high fuel prices make losses likely and those losses could go on for several quarters. Loan restrictions could cause the companies to move into default.
But the risk of changing loan terms is that the airlines will move into Chapter 11 anyway. Fuel costs could cripple them that much. The banks would have given better deals and have nothing to show for it but worthless paper.
Douglas A. McIntyre is an editor at 247wallst.com and the author of the Ten Stocks Under $10 newsletter.
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