The September 11th attack
United CEO says airline may 'perish'
By Dave Carpenter
Associated Press Business Writer
CHICAGO — United Airlines' chief executive James Goodwin says the carrier "will perish" sometime next year if it cannot soon stem huge losses that have worsened dramatically since Sept. 11.
His comments came in a letter to employees, obtained today as United continues to slash its schedule and work force to cope with the drastic decline in air travel caused by last month's terrorist attacks.
"Before September 11 we were not in a comfortable financial state, with costs exceeding our revenue on a daily basis," Goodwin wrote. "Today, the situation is exacerbated with costs exceeding revenues at four times the pre-September 11 rate. Today, we are literally hemorrhaging money.
"Clearly this bleeding has to be stopped — and soon — or United will perish sometime next year."
Even with a $15 billion industry bailout, airline officials have speculated that bankruptcy was imminent for weaker carriers, although they did not name them.
"We're so far away from break-even that it's not even worth calculating," David Swierenga, chief economist at the Air Transport Association, said last month after the bailout had been approved.
United spokesman Joe Hopkins confirmed the contents of the letter, written last week and first reported earlier today by the industry publication Air Transport World. He said it had not yet been distributed to employees and was leaked prematurely.
Even before the attacks, the nation's second-largest airline was projected to lose $1 billion this year because of the economic slump, a falloff in business travel and lingering labor and service woes. United is more dependent on business travel than other major airlines, and subsequently has suffered greater losses both before and after the attacks.
Last week, United said financial losses stemming from the attacks and subsequent grounding of its fleet probably will exceed the company's share of aid coming from a federal bailout package — so far, $390 million of an expected $800 million.
Glenn Engel, an analyst for Goldman Sachs, said the airline industry is losing a combined $50 million a day even with a recent recovery in air travel. A lot of airlines could run out of cash before the end of 2002 without more improvements, he said, although they could still operate from bankruptcy while awaiting a turnaround.
"I'd be shocked if United perishes a year from now," he added.
Another analyst, Helane Becker of the Buckingham Research Group, said Goodwin's scenario rings true and probably applies to every major U.S. airline.
"The numbers they're going to report in this quarter are going to be ridiculously horrible," she said, estimating a $35-a-share loss for United parent UAL Corp. which would triple the amount of the second quarter, when losses totaled $605 million.
"They've lost billions of dollars and will lose billions more."
United has already announced plans to lay off about 20,000 of its 100,000 employees. Yesterday, it said it is trimming its daily schedule to 1,664 flights — down about 30 percent since the attacks — as of Oct. 31.
Shares in the airline company, which were trading at close to $80 at the beginning of last year and $30.82 before the attacks, fell 11 cents to $18.64 today on the New York Stock Exchange.
Goodwin told employees in the letter that before the attacks, "while things were difficult, we were putting in place the cornerstones of a strategic plan to improve our revenue and profitability."
In the wake of the tragedy, "we are in nothing less than a fight for our life. Never in our 75-year history have we faced an economic challenge of this magnitude, when the dropoff in air travel has been so unexpected and prolonged. ...
"In the past, we struggled to make a profit. Now we're in a struggle just to survive."
Indicating that cost-cutting will continue, the chairman and CEO said all aspects of the business are being examined.
"Nothing is sacred or off limits," he said.
