United Airlines, the world's No. 2 carrier, filed for bankruptcy yesterday, the largest such case ever in the global airline industry. - ReutersCHICAGO, (Reuters):
UNITED AIRLINES filed for bankruptcy on Monday, the largest ever in the global airline industry, after high costs and low airfares left the world's No. 2 carrier with too much debt and not enough cash.
UAL Corp.'s United, with one of the broadest networks in the world, will continue to fly worldwide as it attempts to reorganise under protection from the US Bankruptcy Court in the Northern District of Illinois.
The entire US airline industry has been reeling from a slump in business travel and the Sept. 11 attacks, posting losses last year of about $10 billion and on track for at least US$7 billion in losses this year.
United stressed in a statement it will be "business as usual" for customers.
But for employees, suppliers and others, changes are in store, said Chief Executive Glenn Tilton.
Tilton told Reuters in an interview he would consider selling some of the airline's assets in bankruptcy if they don't fit and someone else is willing to pay a "superior" price. The airline will shrink in the future, but he could not yet predict how much.
United, with about 83,000 employees, had two of its Boeing jets commandeered in the devastating attacks on New York and Washington on Sept. 11, 2001.
Since then it has posted nearly US$4 billion in losses, with no end in sight to the red ink.
Judge Eugene Wedoff, chief of the bankruptcy court in Chicago, will preside over the huge bankruptcy case, which the airline said it hopes to complete within 18 months.
Shares of UAL tumbled as much as 15 percent from Friday's close on the New York Stock Exchange, but pared losses to trade unchanged at 93 cents around midday on Monday. The exchange is still reviewing whether to delist the stock.
SECOND MAJOR US CARRIER IN COURT
Another big US airline, Arlington, Virginia-based US Airways Group, filed for bankruptcy in August, and several smaller carriers have shut down altogether.
For United, which has a history of labour troubles and some of the highest wage costs in the industry, the downturn has also proved too difficult to navigate. The US government last week rejected the airline's bid for federal loan guarantees, which had been its last hope for securing fresh capital.
The court filing has been widely expected and analysts generally predict a successful although lengthy court process.
"The odds clearly favour a reorganisation, but that is by no means a foregone conclusion," said Gary Chase, airline analyst at Lehman Brothers. "United and its employees and suppliers have to quickly address the company's heavy cash burn in order to ensure a successful reorganisation."
Tilton said to get out of bankruptcy, the airline may reapply to the government for loan guarantees. "It's a very good possibility," he said. "I think that's what they intimated in their response. I think the new business plan will be far more appealing to them upon exit than what we were able to put together as a stabilisation."
UNIONS REACT
In a statement, the International Association of Machinists, representing about 37,500 workers, said it foresees sacrifices for workers but the union is energised about its role in the bankruptcy.
"Though bankruptcy may be new for our United Airlines members, the IAM has resources and experience in this area. We do not intend to be passive participants in United's bankruptcy. Actually, we are primed to play an active role."
The Air Line Pilots Association also said any successful restructuring must involve the pilots' union.
"United Airlines' Chapter 11 bankruptcy filing is one of the most difficult and disappointing developments in our proud history and one that we have worked extremely hard over the past 12 months to avoid," said Captain Paul Whiteford, the head of the airline's pilots branch.
Leaders of United's unions had agreed to a total of US$5.2 billion in wage cuts over 5-1/2 years, but rank-and-file mechanics rejected their US$700 million portion the night before Thanksgiving, dealing the bailout plan a blow.
Tilton told Reuters he still believes the US$9 billion outlined by former CEO Jack Creighton was a reasonable level.
United is 55 percent employee-owned, and the pilots and machinists each have a seat on the company's board after a 1994 employee stock ownership plan was put in place. A simple majority vote from the board was required to approve a bankruptcy filing. Bankruptcy usually leaves a company's common stock worthless.
"The natural tendency in situations like this is to waste energy placing the blame," Chase said. "Unfortunately, that's the most unproductive thing that United and its employees and creditors can do at this time."
Included in the bankruptcy filing are UAL Corp., United Airlines Inc. and 26 other direct and indirect subsidiaries.
FINANCING IN PLACE
United confirmed it arranged with a group of banks for US$1.5 billion in financing to see it through bankruptcy. At the final hour, GE Capital pulled out of the group of lenders and was replaced by CIT Group.
The other three lenders are JP Morgan Chase, Citibank and Bank One.
Banks and others are willing to lend United the money in bankruptcy because these credit lines get paid back first.
