Ground shifting for airline, industry
Associated Press
The rejection yesterday of United Airlines' request for a $1.8 billion government loan guarantee alters some of the airline's circumstances and outlook.
Q. What does the decision mean for United?
A. United said that without the government backing it cannot get the $2 billion private loan it needs to meet imminent debt obligations. It has to pay off $920 million by Dec. 12 or face default.
Q. Does that mean United will file for Chapter 11 federal bankruptcy court protection?
A. The airline has said that is likely if it doesn't get the guarantee and the loan.
Q. What happens if it files for Chapter 11?
A. United gains protection from its creditors but loses control of its restructuring, and its shares are almost certain to become worthless. A bankruptcy judge can order steeper cutbacks than the ones already proposed by United, and alter or even dissolve its labor and other contracts; the employee stock ownership plan also could be scrapped.
Q. Will the airline stop flying?
A. United has pledged to keep operating its normal schedule during bankruptcy, just as US Airways has been doing since it filed for Chapter 11 in August. "In the short run, this doesn't need to affect travelers at all," said Darrell Jenkins, head of George Washington University's Aviation Institute.
Q. Will frequent-flier miles be affected?
A. Experts say those probably are safe. Frequent-flier programs are one of the airlines' best marketing tools and unlikely to be suspended even in bankruptcy court. It's possible they could be tightened to require more miles. Even if United were to go out of business in the future, a competitor would probably step in and honor 25 to 50 percent of the miles to try to win loyal new customers.
Q. How will the decision affect United and its passengers over the longer term?
A. To shrink its capacity in a bid to become profitable again, United may ground more planes, drop service to some markets, eliminate unprofitable international routes and reduce the number of cross-country flights.
Q. What will be the effect on the airline industry?
A. Profound. Cutbacks ordered for United are likely to prompt big reductions by its competitors as well, plus new revenue strategies. Once an industry correction is over, airlines should be financially stronger and more efficient. Also, the huge divide between high business fares and cheap walk-up fares should narrow.
Q. What are the odds of United surviving a bankruptcy filing?
A. Uncertain. Continental, America West and others survived bankruptcy; Eastern, Pan Am and Midway didn't.
Said Jenkins: "If they make peace with labor, they will come out of Chapter 11 stronger than they've ever been. If they have any travel disruptions due to labor unrest, then they become the next Eastern Airlines."
