Unfriendly Skies - UA Officially Flies Into Bankruptcy

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Aug 20, 2002
[STRONG][BR]NEW YORK (CNN/Money) - United Airlines, the world's No. 2 airline, filed for bankruptcy protection Monday, succumbing to continued losses and staggering debt payments it could no longer afford to make, according to wire reports. [!--startclickprintexclude--][IMG height=321 alt= src=http://money.cnn.com/2002/12/09/news/companies/ual_bankruptcy/unfriendly_skies.gif width=248 align=right border=0] [!--endclickprintexclude--][BR][BR]The decision to file for bankruptcy follows a weekend of meetings of the company's board of directors, and a warning from union leadership that the bankruptcy was [A href=http://money.cnn.com/2002/12/07/news/companies/bc.unitedairlines.ap/index.htm]unavoidable and imminent[/A]. [BR][!--[BR]The filing became a virtual foregone conclusion following [A href=http://money.cnn.com/2002/12/04/news/companies/united_denied/index.htm]rejection[/A] on Wednesday of United's request for $1.8 billion in federal loan guarantees. A three-member federal panel said that the airline's recovery plan depended on an unrealistic rebound in revenue, and that negotiated labor cost savings by the airline still left it with among the highest costs in the industry. [BR][BR]With United's parent, [A href=http://cgi.cnnfn.com/mgi/mgi_search?QUERY=UAL]UAL Corp.[/A] ([A href=http://gw.cnnfn.com/search/GW?symbol=UAL]UAL[/A]: [A href=http://cnnfn.multexinvestor.com/TickerSearch.asp?ticker=UAL]Research[/A], [A href=http://cgi.cnnfn.com/firstcall/fc?ticker=UAL]Estimates[/A]), facing the expiration of a grace period Monday on a missed $300 million loan payment, the airline executives said they had no choice but to seek protection from creditors. [BR][BR]The airline stressed it would continue to operate a normal schedule of flights and honor passengers' tickets and frequent-flyer mileage. The airline accounts for about 19 percent of U.S. air travel, with about 1,800 daily flights. According to sources close to the situation, it had arranged for about $1.5 billion in loans, known as debtor-in-possession financing needed to fund operations during a court supervised reorganization. [BR][BR]The airline had negotiated with union leaders for labor cost savings of $5.2 billion over the next 5-1/2 years in an attempt to win the $1.8 billion in federal loan guarantees. Those concessions disappeared with the rejection of the loan guarantee request by the Air Transportation Stabilization Board late Wednesday, leaving many of the employees receiving industry-leading wages. [BR][BR]Bankruptcy courts have the power to void labor and other contracts, though that can be a difficult and time-consuming process. UAL CEO Glenn Tilton told employees in a recorded message Friday that [A href=http://money.cnn.com/2002/12/06/news/companies/united_ceo/index.htm]deeper cuts[/A] than those already negotiated and changes in work rules would be needed if the company was forced to reorganize in bankruptcy court. He didn't specify if management expected to win the deeper cuts in new negotiations or through court action. [BR][BR]Winning further negotiated concessions from the employees will be difficult. The airline's 13,000 mechanics voted against the concession package last week, despite strong support from their union's leadership. The Air Line Pilots Association said Friday it was surprised by Tilton's comments. [BR][BR]We believe it is very premature to discuss these issues. ALPA is not interested in conducting our negotiations in the public forum, said the union's statement. [BR]
[BR]Series of problems over the last 2 years
[BR][BR]The airline was once the world's largest and most successful. But it was hit with a series of problems starting in 2000 that led it down the road to the bankruptcy filing. The carrier has not reported a quarterly profit since the second quarter of 2000. It lost $1.7 billion, or $30.96 a share, in the first three quarters of this year alone. ([A href=http://money.cnn.com/2002/12/09/news/companies/united_timeline/index.htm]Click here for Flight plan to trouble - a timeline of United's path to bankruptcy[/A]) [!--startclickprintexclude--][IMG height=460 alt= src=http://money.cnn.com/2002/12/09/news/companies/ual_bankruptcy/largest_bankruptcies.gif width=270 align=left border=0] [!--endclickprintexclude--][BR][BR]First management proposed a merger with US Airways Group, a deal that was eventually blocked by federal antitrust regulators. But the more than one-year effort to complete the merger distracted management and led them to negotiate an expensive contract with the pilots union in an attempt to win their support for the deal. The deal left it with the highest labor costs in the industry. [BR][BR]In 2000, pilots and mechanics at the airline also engaged in a series of job actions to put pressure on management for new contracts, actions that led to flight cancellations and helped chase away some business travelers. [BR][BR]When the country's economy slowed, it led to a sharp drop in business travel and business fares, hurting the company's finances. It also faced greater competition than other major airlines from the growing low-cost, low-fare carriers such as [A href=http://cgi.cnnfn.com/mgi/mgi_search?QUERY=LUV]Southwest Airlines[/A] ([A href=http://gw.cnnfn.com/search/GW?symbol=LUV]LUV[/A]: [A href=http://cnnfn.multexinvestor.com/TickerSearch.asp?ticker=LUV]Research[/A], [A href=http://cgi.cnnfn.com/firstcall/fc?ticker=LUV]Estimates[/A]) or [A href=http://cgi.cnnfn.com/mgi/mgi_search?QUERY=JBLU]JetBlue Airways[/A] ([A href=http://gw.cnnfn.com/search/GW?symbol=JBLU]JBLU[/A]: [A href=http://cnnfn.multexinvestor.com/TickerSearch.asp?ticker=JBLU]Research[/A], [A href=http://cgi.cnnfn.com/firstcall/fc?ticker=JBLU]Estimates[/A]) that did not operate the extensive network of flights of United or [A href=http://cgi.cnnfn.com/mgi/mgi_search?QUERY=AMR]American Airlines[/A] ([A href=http://gw.cnnfn.com/search/GW?symbol=AMR]AMR[/A]: [A href=http://cnnfn.multexinvestor.com/TickerSearch.asp?ticker=AMR]Research[/A], [A href=http://cgi.cnnfn.com/firstcall/fc?ticker=AMR]Estimates[/A]) or [A href=http://cgi.cnnfn.com/mgi/mgi_search?QUERY=DAL]Delta Air Lines[/A] ([A href=http://gw.cnnfn.com/search/GW?symbol=DAL]DAL[/A]: [A href=http://cnnfn.multexinvestor.com/TickerSearch.asp?ticker=DAL]Research[/A], [A href=http://cgi.cnnfn.com/firstcall/fc?ticker=DAL]Estimates[/A]). [BR][BR]Then came the Sept. 11 terrorist attack, which also sharply curtailed demand for air travel and fares. United was also unfortunate enough to have major debt payments come due before there was any meaningful recovery in the industry. [BR][BR]There is not one smoking gun for United, said John Heimlich, director of economic and market research for the Air Transport Association, the industry trade group. There were a lot of factors that emerged. Some were controllable, some of them were not. Then 9/11 was the lighter fluid on the grill. [/STRONG]
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