By Robert Manor,Chicago Tribune

CHICAGO – A federal judge on Friday gave United Airlines a deadline of Nov. 1 to file a plan for exiting bankruptcy, and if it fails to do so it risks losing control of its destiny.

However, United’s chief financial officer, Jake Brace, said the airline will comply and complete its plan in September.

United has won 10 extensions of its exclusive right to determine its reorganization plan for leaving bankruptcy.

“No further extensions will be granted in the absence of compelling and unforeseeable circumstances,” Judge Eugene Wedoff said.

Some of United’s banking creditors want more say in the airline’s business plan to leave bankruptcy. In June, for example, U.S. Bank National Association and the Bank of New York argued that United should face competition in developing its proposed business plan. The business plan decides how the future equity and debt of the company will be distributed among the various classes of creditors.

Brace, the United executive, said the airline will file soon.

“We are going to be filing in the early part of September,” he said. United says it will exit bankruptcy proceedings later this year or early in 2006.

Several factors have worked to delay United’s exit from bankruptcy. “They had to restructure labor contracts and deal with pensions and all of that takes time,” said Randal Picker, a professor at the University of Chicago Law School who teaches bankruptcy law.

After months of negotiations, United’s unions agreed to wage, benefit and other concessions worth $2 billion, which the airline said were essential if it was to survive. And Picker said three years is not extraordinarily long to wind up a big bankruptcy.

“The LTV (steel company) bankruptcy ran five years,” he said. “Railroad bankruptcies used to run forever.”

Enron filed for bankruptcy in December 2001, for example, and is not certain to exit it this year.

Like most other airlines, United has also been hurt badly by the high price of jet fuel.

Brace said United’s business plan is based on current oil prices, and not on the potentially far higher prices forecast by some in the petroleum industry.

Goldman Sachs, for example, has warned that crude oil could rise above $100 a barrel.

“Nobody in the industry is building a business plan on $100-a-barrel oil,” Brace said. “Fuel is an equal opportunity harmer of the industry.”

But United is sounding more optimistic about its future in recent days.

On Thursday, for example, United’s chief executive, Glenn Tilton, announced that the company had lined up $3 billion in financing to help it leave bankruptcy.

“That he has a commitment for three (billion dollars) is a very good sign,” said Roger Frankel, who heads the bankruptcy practice at the law firm Swidler Berlin. “No company the size of United can emerge from bankruptcy without bank support.”

Frankel also said it is not surprising that United has endured nearly three years in bankruptcy court.

“You have a difficult industry to begin with, you have all sorts of labor issues and in the last year they’ve had escalating fuel costs,” he said.

Meanwhile, a dispute between the Internal Revenue Service and United continued, as Wedoff delayed a decision on whether to hear the matter.

The Internal Revenue Service is arguing that millions of dollars in securities and notes the airline plans to distribute to its workers after it leaves bankruptcy should be considered taxable income.

Workers are to get part of the equity or other securities given to unsecured creditors when the airline leaves bankruptcy. This was in exchange for the concessions they made.

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(c) 2005, Chicago Tribune.

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Distributed by Knight Ridder/Tribune Information Services.

AP-NY-08-26-05 1703EDT

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