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United Airlines
(UAL 15-aug-2002) United Airlines may file for bankruptcy
UAL's United Airlines, the second-largest US airline, admitted for the first time it may be forced to file for bankruptcy protection in the autumn, unless it secures dramatic cost reductions in the next 30 days from its employees and other stakeholders.

The filing would mark the largest bankruptcy of a US airline since the early 1990s, and follows the decision last Sunday by US Airways, the seventh-largest carrier, to file for Chapter 11 protection amid dwindling revenues, high costs and fare wars.
 
United said it requires "urgent, significant and immediate" changes. "Simultaneously, we are preparing for the potential of a Chapter 11 bankruptcy filing this fall, due to our fourth-quarter debt payments," United said on Wednesday.

Analysts have criticised United for failing to act aggressively enough to reduce its cost-structure and agree-wage concessions from its unions. This week United's shares fell to their lowest level in 20 years amid fears of a possible bankruptcy.

Deutsche Bank this week rated the prospect of a United bankruptcy at 80-85 per cent, and said it would be the best way for the airline to shake up its high costs and change its ownership structure. The airline is 55 per cent owned by its employees, under an unusual deal that many analysts argue has hampered its ability to restructure or attract capital.

A bankruptcy filing would mark an unusual twist for the airline and for the federal government.

In 2000, the US rejected United's attempt to merge with US Airways. Those two airlines have proved the biggest carriers to seek a government bailout under its loan guarantee scheme, and to face bankruptcy.

But there are clear differences between the two airlines. US Airways has gained conditional government approval for $900m in federal loan guarantees, based on its restructuring plan and cost cuts it agreed in recent months. United Airlines, which had requested $1.8bn in guarantees, said on Wednesday that Washington has rejected loans based on its business plan.

The poor response from the US Air Transportation Stabilization Board (ATSB) comes in spite of significant pressure by politicians to endorse the loan application from United.

The airline on Wednesday said it would now update its application with the ATSB to include "significantly broader, deeper and longer-term cost savings," setting itself a timeframe of 30 days to conclude its discussions. A debt payment of $875m is due this autumn.

Jack Creighton, United's chief executive, who plans to stand down in October, said: "We need to compete in an industry that has fundamentally changed."

United declined to comment on the timing of a new chief executive to replace Mr Creighton, although analysts said the company needed a credible turnaround specialist with industry expertise in order to lead reorganisation.

United has had limited success so far in squeezing concessions from its employee groups. While its pilots have tentatively agreed a wage deal, analysts have complained United has failed to go far enough, and pointed out that wages would rebound to the usual levels after the first year. United's other unions have so far failed to agree concessions.

One analyst said Wednesday's announcement was "aimed to put the fear of God in those unions as they continue with talks on cuts".

(from: Financial Times {London 14august 2002])

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