Posted on: Saturday, September 18, 2004
United hopes to slash another $500M in costs
Advertiser News Services
CHICAGO — United Airlines, seeking to attract financing and exit bankruptcy, is targeting an additional $500 million in annual cost cuts to stem losses.
The cuts at the nation's No. 2 carrier would come on top of $655 million in yearly cost savings the company identified two weeks ago and $2.5 billion in wage and benefit cuts it made a year ago. They also would be separate from United's tentative plan to end employee pension plans, which would save the company $4.1 billion in payments due over the next five years.
"This industry is changing so fast that what's adequate today is inadequate tomorrow," said Bill Rochelle, a bankruptcy lawyer who represents a United aircraft creditor. "Their costs are still so high as to suggest that survival would be difficult outside of Chapter 11."
The cuts are required in part because of "record high fuel costs and an unforgiving pricing environment," United said in a court filing. United discussed the need for more savings with its creditor and union representatives last month, Chief Financial Officer Jake Brace told reporters after a court hearing in Chicago.
U.S. Bankruptcy Judge Eugene Wedoff approved United's request today to extend, until the end of October, its exclusive right to submit a reorganization plan before competing plans can be offered. The company last month abandoned a request for an extension through the end of this year after unions objected.
The company also said it appointed Independent Fiduciary Services Inc. to oversee its employee pension plans. The U.S. Labor Department approved that appointment. Wedoff said his approval wasn't necessary.
United has said it won't make any more contributions to its pension plans while it remains in bankruptcy and may terminate the plans, which are owed about $4 billion over the next five years. Payments are still being made to retirees for now.
Remaining in bankruptcy court for additional months may be desirable because it gives the company time to adjust to a rapidly changing industry, Rochelle said.
United and other major carriers have been unable to raise fares this year because of competition from discount airlines, including Southwest Airlines Co. Fuel costs, the industry's second- biggest expense, have increased.
United is studying the number of job cuts that may be required as it prepares a business plan to secure the exit financing, Brace said. He didn't dispute a report by the Financial Times that the airline has weighed the possibility of cutting as many as 6,000 jobs. United had about 59,700 employees at the end of June.
"I'm not going to talk about it until we've worked through that aspect," Brace said.
The carrier, which filed for Chapter 11 bankruptcy in December 2002, was forced to revamp its business plan after a U.S. loan board refused to provide a loan guarantee in June.
