United asks for support
By Keith L. Alexander
The filing in federal bankruptcy court in Chicago by UAL Corp., the airline's parent company, listed $22.8 billion in assets and $21.2 billion in liabilities, making it the largest U.S. airline bankruptcy in history.
United is the nation's second-largest airline, with 80,000 workers who collectively own 55 percent of the company and now are likely to lose their entire stake.
The airline announced immediate pay cuts for managers and said it hopes to renegotiate its debt, win major concessions from its unions and emerge within 18 months as a profitable, though probably smaller, carrier.
But that will depend on its ability to maintain and even increase revenue and keep its suppliers on board. During court proceedings yesterday, UAL attorney James Sprayregen said the carrier expects to lose $20 million to $22 million a day this month and $10 million to $15 million a day next month, compared with losses of $7 million to $8 million at the end of September.
UAL chairman and chief executive Glenn F. Tilton spent the day greeting passengers at Chicago O'Hare International Airport, rallying employees, monitoring bankruptcy court proceedings and giving media interviews. Top executives visited other key airports.
"We're going to perceive this not as a Chapter 11, but as a Chapter 1. It's a new beginning for United," Tilton said in an interview.
Today many newspapers will carry full-page advertisements conveying that theme: "You will feel the new energy and the new optimism. You will feel the new beginning."
Meanwhile the airline, which is trying to extract large concessions from its unions, announced pay cuts for 10,500 United officers and managers. Officers' salaries will reduced by 11 percent and managers by between 2.8 percent and 10 percent, depending on the salary.
Tilton's $950,000 salary will be cut 11 percent, but he plans to keep the $3 million bonus that he received when he joined the airline in early September. He also has 1.15 million stock options, which will not be affected by the cuts.
The pilots had agreed to 18 percent pay cuts, as part of $5.2 billion in labor concessions that United negotiated in an effort to win a federal loan guarantee of $1.8 billion. The leaders of the International Association of Machinists negotiated a 7 percent cut for mechanics, but union members have not approved it. The cuts were contingent on federal approval of the loan guarantee.
But the government rejected the airline's application last Wednesday, causing United to file for bankruptcy protection. Sources close to the company said United will now need more cuts to emerge from bankruptcy.
"The pilots are going to want to work in a collaborative fashion to keep the company out of Chapter 7 and to get out of the current situation as fast as possible, even if that means something different from what was agreed to before. But to discuss specific numbers before we've been to the bargaining table doesn't make sense," said Paul Whiteford, head of United Airline's pilots union. He was referring to Chapter 7 of the federal bankruptcy code, under which companies are liquidated.
Joe Tiberi, spokesman for machinists union, declined to comment on concessions.
United has lined up $1.5 billion in financing to enable the airline to run, at least for awhile, during the reorganization process.
United said it has $1.4 billion in cash, of which $600 million cannot be easily accessed. At the end of September, United had $2 billion in cash, of which $340 million was restricted.
The next bankruptcy court hearing is scheduled for Dec. 30. United's top 20 creditors have scheduled a meeting for Friday.
"This is liable to be a long, contentious and potentially difficult reorganization," said aviation analyst Philip Baggaley of Standard & Poor's Corp. One reason, said Baggaley, is that the airline failed to arrange for major cost cuts and secure additional financing before it filed.
United has no labor concessions and no federal loan guarantee. With the airline losing at least $20 million daily, its financing could be used up quickly, especially if the nation goes to war with Iraq or if there is a extremely cold winter, causing fuel prices to surge.
Crucial to United's long-term survival will be its ability to cut cost and raise money. United is expected by analysts to reduce the number of flights it makes between some cities and to sell some routes altogether.
A source close to United said flight reductions are likely in the coming months. Tilton agreed that there will be some reductions in its operations, but he said they won't be made "anytime soon." Over the next few months, Tilton said, the airline will review its operations and routes and either downsize or eliminate those that aren't profitable.
At least one airline chief executive, Continental Airline's Gordon Bethune, has indicated he would be interested in acquiring some of United's assets.
Tilton said United plans to reapply for a federal loan guarantees after the airline cuts more costs and is close to emerging from bankruptcy.
Tilton said he plans to lead the effort to keep customers flying. "This is the most appropriate place for me to be," said Tilton, who has spent much of his career in marketing before becoming vice chairman of ChevronTexaco Corp. "It's about the customer, the customer, the customer. I'm the No. 1 salesman for this company."
Another critical element of the reorganization will be the employees, who gave up millions of dollars in 1994 in exchange for 55 percent ownership of the airline. Now their shares, which hit a high of about $100 in 1997, are worthless.