United plan includes closing international bases

By Lynne Marek
Bloomberg News Service

United Airlines' new business plan calls for the closure of four bases in Europe and South America, which the airline said would cause 229 layoffs, but save $120 million annually. United last week announced it lost $889 million during the third quarter. Bloomberg News Service

The world's second-largest carrier said it filed the plan late Tuesday night with the Air Transportation Stabilization Board for a guarantee that would let it raise $2 billion in private loans and pay $945 million of debt due by year's end.

Closing the four bases in Europe and South America will save $120 million annually, UAL said.

UAL has been unprofitable for nine quarters, including an $889 million third-quarter net loss announced last week. Closing the international bases will dismiss 229 workers in addition to 1,250 U.S. layoffs announced earlier this week. The board told the airline that an earlier plan didn't cut costs enough to win support for a guarantee, and there are still some skeptics.

"A $1 billion a year on what is essentially United's $7 billion labor cost bill is really not going to do it," said Jon Ash, managing director of the Washington-based airline consulting firm Global Aviation Associates. "It's inadequate on its surface and we don't know the substance of it."

UAL has reached agreement with the unions on $5.8 billion of labor savings over 5 1/2 years. Still, it hasn't yet reached terms of those new contracts with the individual unions, and the groups have said their members need to approve the concessions.

The recovery plan includes $1.4 billion in annual non-labor savings and a process that may save $400 million more, the company said in a statement. UAL said it would shave its capital spending by $1.2 billion between 2003 and 2005. United has said it is also seeking concessions from lenders and companies that lease its aircraft.

Bases in Caracas, Santiago, Milan and Dusseldorf, Germany, will close in January, resulting in 229 employees leaving the company with severance payments. The company plans to continue to offer flights in the markets through its Star Alliance international partners, including Germany's Lufthansa AG and Viacao Aerea Rio-Grandense SA, or Varig, of Brazil.

United also plans to switch to smaller jetliners in some international markets, including using Boeing 767s instead of 777s on some U.S.-Europe routes and using Boeing 777s instead of 747s on some U.S.-Japan flights.

Combined with 1,250 U.S. layoffs announced earlier this week after the closing of three reservations centers and an aircraft maintenance line, the company will have cost savings of $220 million.

United also said in the new plan that it had reduced its seat and flight capacity by 12 percent since it first filed an application with the board in June. Part of that decrease was a typical 7 percent to 9 percent seasonal adjustment for the slower winter months, according to spokesman Chris Brathwaite.

The board has said that it will grant guarantees based on the extent of concessions and the expected ability of a carrier to repay the loan based on its business plan. The U.S. government provided $5 billion in cash aid and a potential $10 billion in guarantees after the attacks reduced air travel.