Here is the Tribube's article from yesterday's BK court revelations:
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UAL expects $3.2 billion loss in 2002
By John Schmeltzer and Thomas A. Corfman
Tribune staff reporters
December 31, 2002
A top executive for United Airlines disclosed in court Monday that the carrier will lose a record $3.2 billion this year, far surpassing previous estimates by the company or Wall Street.
Meanwhile, in a recorded telephone message to employees, the airline warned that it may be forced to lay off a "significant" number of additional workers soon. The message added that the company "has not yet decided which employees will be directly affected," and that those decisions "will be made in the next several weeks."
United, which has laid off 20,000 workers since last year's terrorist attacks, employs about 81,000 people. The airline filed for bankruptcy protection on Dec. 9.
The disclosure of the larger loss came in a U.S. Bankruptcy Court hearing. United asked for a permanent injunction prohibiting the trustee of the airline's employee stock ownership plan from selling additional shares in the company.
Instead, Judge Eugene Wedoff, chief of the bankruptcy court in Chicago, extended until Jan. 15 a temporary order barring sale of large blocks of stock.
But it was the magnitude of the loss that startled the jammed courtroom.
Jake Brace, United's chief financial officer, told Wedoff that the airline lost $2.8 billion through the end of November, with another $400 million loss expected this month. He predicted that United won't return to profitability until 2005, a year later than it had forecast earlier.
Wall Street had been estimating the airline would lose about $2.5 billion, while the airline had been indicating it would lose about $2.1 billion, the same as in 2001.
A United lawyer, Brian Sieve from Kirkland & Ellis, told Wedoff it was necessary to block Boston's State Street Bank & Trust Co., the trustee of the ESOP, from selling more shares.
State Street, which began selling shares in October because of the airline's financial problems, sold 24 million shares prior to the United's bankruptcy filing. But Wedoff blocked the bank from selling additional shares in order to protect tax benefits potentially worth more than $1 billion should the airline emerge from bankruptcy.
As a result of the sales by State Street and others, United employees now own only about 28 percent of the Elk Grove Township-based airline, down from a high of 55 percent. That's critically close to the level at which the airline's two most powerful unions would lose their veto power over business decisions through their seats on the company's board of directors.
Sieve disclosed that the airline, apparently fearing a hostile takeover, is preparing to seek an order early next month blocking anyone from acquiring more than 5 percent of UAL's outstanding shares.
Lawyers for State Street, however, argued that UAL's stock could be worthless if the bank is not allowed to sell. Shares of United parent UAL Corp. closed Monday at $1.43, up 5 cents, on the New York Stock Exchange.
Chester Gougis, president of Chicago-based Duff & Phelps, an independent financial adviser that specializes in ESOP issues, testified that the stock prices of large companies that file for bankruptcy almost always go down to "virtually nothing."
"And there is nothing about United to suggest it won't follow the same general pattern," Gougis said.
Even Brace appeared to support that contention.
"I think the stock will be worth very little at the end of the case," he said during testimony.
Also at Monday's hearing, Wedoff indicated he may order as early as next week pay cuts of up to 13 percent for the 37,000 workers represented by the machinists union. The cuts would come if United can sufficiently support a motion filed last week for temporary wage reductions for all its unionized workers. The other unions must approve the cuts.
Sharon Levine, an attorney representing the International Association of Machinists and Aerospace Workers, told Wedoff the union opposes the wage concessions because the airline hasn't provided enough information justifying the cuts.
The other unions representing United's workers are slated to vote by Jan. 8 on the temporary cuts. The Air Line Pilots Association is recommending its 8,000 members accept a 29 percent pay cut, while the Association of Flight Attendants is recommending approval of a 9 percent cut for its 22,000 members.
The Transport Workers Union and the Professional Airline Flight Control Association, which represent smaller groups of United employees, also are scheduling votes on the proposed cuts.
Joseph Tiberi, a spokesman for the machinists union, said it is the first time he can recall an airline involved in a bankruptcy proceeding seeking temporary pay cuts before attempting to negotiate permanent cuts.
"We've tried to make it clear to our members that [the 13 percent cut] is only an interim measure," he said. "United is certainly going to be looking for more."
Michael Boyd, president of the Boyd Group, an airline consulting group in Evergreen, Colo., was dumbfounded by the disclosure of the loss by Brace.
"How do you lose $3.2 billion on $15 billion in revenue?" he asked. "How did they get this far in the hole? It can't be just labor unions and silly work rules," he said, referring to contract stipulations that many critics say force United to hire more pilots and mechanics than are needed.
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This last paragraph should be underlined where it states that "labor unions and silly work rules" are not the primary cause for UAL's problems.
Whatever "significant" cuts they make, it appears it will not even come close to fixing the huge financial black hole at UAL. To use Boyd's own words, how do you lose $3.2 billion on $15 billion in revenue?