United Mechanics Nix Pay Cuts

United Airlines' stock lost nearly a quarter of its value Friday on investor fears that a crippling labor vote setback has dashed its efforts to avoid a Chapter 11 bankruptcy filing.

"The picture is bleak," Blaylock & Partners analyst Ray Neidl told CBS News. "At this point it looks extremely unlikely that they can avoid Chapter 11 filing."

Shares in United parent company UAL Corp. plummeted 84 cents, or 23 percent, to close at $2.79 in a heavy sell-off during shortened holiday hours on the New York Stock Exchange. More than 21 million shares were traded, six times the average daily volume, and at one point the stock sank as low as $1.72 — not far off the more than four-decade low of $1.42 reached last month.

CBS MarketWatch analyst Neal Chase doesn't think the company's financial troubles will affect passengers this weekend, other than seeing some nervous employees wondering about their futures.

"The big impact if we see an impact from this on travelers could come between now and Christmas if United is forced to file for bankruptcy, if they then have to change their schedules around for Christmas, that could be the first time we really see an impact," he said.

Following United mechanics' rejection Wednesday of pay cuts that are a key element of its multibillion-dollar financial recovery plan, Standard & Poor's slashed its credit ratings Friday on UAL and said the company appears almost out of options to keep out of bankruptcy.

"The mechanics' vote makes bankruptcy virtually inevitable for United and UAL," S&P credit analyst Philip Baggaley said.

United, still trying to carry out its restructuring without going to bankruptcy court, immediately reopened talks with union leaders and was trying Friday to negotiate a modified agreement that could be put to a new vote, spokesman Jeff Green said.

Without it, the nation's second largest carrier is unlikely to qualify for a desperately needed federal bailout, reports CBS News Correspondent Lee Cowan.

But a revised version would still have to come up with the mechanics' roughly $600 million share of United's targeted $5.2 billion in labor cutbacks, Green indicated. "We need to reach that amount that we already agreed upon (with a coalition of union leaders) if we're going to get a government loan guarantee," he said.

Normally, it would take about a week before a new vote is held, union officials said.

MarketWatch's Chase said even if the mechanics do finally agree to a smaller pay cut, "is that enough to convince the government to back these loans and keep United out of bankruptcy?"

United reiterated Thursday that it will be forced to file for Chapter 11 bankruptcy if it doesn't receive a $1.8 billion federal loan guarantee that would enable it to obtain $2 billion in urgently needed private loans. The Air Transportation Stabilization Board is expected to announce its decision on the loan guarantee any day.

"We will continue to work and United will continue to fly and hopefully we will get something hammered out before any bankruptcy filing happens," mechanics union representative Ronnie Stevenson said.

If it is forced to resort to a bankruptcy filing, United has said it will continue flying its normal schedule. Another major airline, U.S. Airways, has been operating normally since filing for bankruptcy in August.

But United and CEO Glenn Tilton are running out of time to get mechanics on board and preserve tentatively agreed-to labor cuts, which the government board is requiring as a stipulation of any federal backing.

The nation's second-biggest carrier faces a $375 million debt payment Monday, although under a grace period it could push that back to Dec. 16. Its cash reserves are believed to be around $1 billion and dwindling as its operations lose an estimated $7 million a day.

The other looming deadline for United is Dec. 31, when wage-cutting agreements accepted by its pilots and other employee groups expire unless all the airline's workers have agreed to concessions. The mechanics are the only holdouts.

One district of the Machinists union, representing 24,500 baggage handlers, customer-service workers and other United employees, approved 6 percent pay reductions Wednesday as their share of the proposed labor package.

The district representing 13,000 mechanics turned thumbs down on a tentative agreement for 7 percent wage cuts, with 57 percent voting "No."

"Although the airline will reopen negotiations with its mechanics' union, it appears unlikely that a revised agreement can be negotiated and approved before United has to make a large debt payment," Baggaley said in his note to investors.

"Even if an agreement is reached, the Air Transportation Stabilization Board is not likely to approve a business plan that scales back promised labor concessions from levels already challenged by some as being insufficient to help correct United's high operating cost structure," he said.

Flight attendants are voting on $412 million in wage reductions between now and 2008, with results to be announced Saturday. Their concessions, like the $2.2 billion from pilots, won't take hold unless the mechanics go along with cuts of their own — far less likely after they decisively rejected $118 million in average annual givebacks.

The Elk Grove Village, Ill.-based airline, weakened by a falloff in business travel and the effects of Sept. 11, already has reduced daily flights by 25 percent since before the terrorist attacks and is cutting back another 6 percent in 2003.

The ripple effect from a United bankruptcy is likely to create a tidal wave elsewhere, reports Cowan — everything from aircraft makers like Boeing to engine manufacturers will suffer. As one analyst put it, as bad as things have gotten in the airline industry today, this would still make history.