=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SF Gate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/c/a/2002/08/13/MN79877.DTL ---------------------------------------------------------------------- Tuesday, August 13, 2002 (SF Chronicle) Now that US Airways has filed for bankruptcy, investors and travelers are a= sking: IS UNITED NEXT? David Armstrong, Chronicle Staff Writer Is United Airlines next? Amid growing concern that the nation's second-largest carrier might soon follow US Airways into bankruptcy, investors on Monday throttled down its parent company's shares by 27 percent to $3.80. UAL Corp. stock traded at $35 a year ago. A company spokesman declined to comment on industry speculation that United, the Bay Area's dominant carrier and a major employer with 16,000 local workers, would file for Chapter 11 protection as US Airways did on Sunday. Such a move would enable United to keep flying while it takes steps to cut its high operating costs. United has lost $2.95 billion since January 2001 and is burning through = an additional $1 million a day. The company, based in Elk Grove Village, Ill., has applied for $1.8 billion in federal loan guarantees, but analysts say securing the loans is far from certain. "While we continue to believe that UAL will ultimately secure financing, the US Airways model suggests that it is more likely to be in the context of bankruptcy that we had initially assessed," said Sam Buttrick, a leading industry analyst with UBS Warburg in New York. United spokesman Chris Brathwaite said: "We won't comment on speculation. "We're focused on our recovery and on our loan application before the Air Transportation Stabilization Board. Anybody who speculates otherwise is simply Monday-morning quarterbacking." United confirmed last week that it had retained bankruptcy lawyers after the Sept. 11 terrorist attacks, which had a declining effect on its business. Jack Creighton, UAL's interim chairman, recently told employees in telephone message: "One thing we know for certain is United Airlines will continue to fly through it all." Separately, Creighton has conceded that the government appears likely to reject the company's bid for loan guarantees. In addition to US Airways, the nation's seventh-largest carrier, several domestic carriers have sought refuge from creditors under bankruptcy court protection. Continental Airlines emerged from Chapter 11 a decade ago as a leaner and much healthier company. America West also continued to operate independently after emerging from bankruptcy. Trans World Airlines filed for Chapter 11 and was subsequently acquired by American Airlines. LAYOFFS EXPECTED AT AMERICAN Today, American itself is expected to announce a number of cost-cutting moves. They include up to 8,000 layoffs over time and the grounding of its fleet of 74 small Fokker jets, the St. Louis Post-Dispatch and the Dallas Morning News report in today's editions. As for United, experts say the airline would cut a number of daily fligh= ts under a bankruptcy filing but continue to carry out maintenance operations. Frequent flier programs would be honored, but it might be difficult getting particular flights. United has suffered from plummeting revenue, especially from business travelers, who are increasingly turning to video conferencing, the Internet and cars and trains instead of short-haul flights. In addition, United has been badly hurt by the events of Sept. 11, in which two United jetliners were hijacked, along with two American Airlines planes. MAJOR BAY AREA PRESENCE Even before the terrorist attacks, United -- which operates a hub at SFO, is a major presence at Oakland International Airport and operates at Mineta San Jose International Airport -- was hemorrhaging cash. United lost $2.1 billion in 2001, an aviation industry record. In the first six months of this year, United lost an additional $851 million, which analysts attribute in large part to its labor costs, which are among the highest in the industry. Employees hold 55 percent of UAL stock and several seats on the company's board of directors. Creighton has repeatedly said that the company needs to obtain wage cuts before it can return to profitability. United's travails are having an unsettling effect on some travelers. Passengers at SFO on Monday said they'd be especially concerned about flight availability if United were to follow US Airways into Chapter 11. "I would be concerned if they cut back on flights," said Hans Hoffmann, who was returning to Seattle after a weekend in the Bay Area with his family. The Microsoft sales representative is a frequent traveler. "I think the airline would continue running, and I would find it hard to believe they would cut back on maintenance," he said. "That's the top priority at all airlines." Harry Hunt, a psychology professor at Brock University in St. Catharines, Ontario, usually flies on Air Canada, a United partner. "I would worry it would make Air Canada prices go up," he said. "The Canadian dollar is already so bad against the U.S. dollar; it's expensive for us to come here." SEEKING LOAN GUARANTEES Officially, United remains focused on obtaining loan guarantees from Washington. The carrier applied for $1.8 billion in federally backed loans in June. The guarantees are distinct from the $5 billion bailout package that Washington gave the airline industry shortly after the Sept. 11 attacks. That money does not have to be repaid. Creighton said in a message recorded Sunday that based on conversations = in Washington, "We've gotten the clear feeling that we need more participation from all of our stake-holders in our cost-cutting efforts" before the loan guarantees can be approved. "They have indicated to us that participation must be broader, deeper and longer." United's pilots have agreed to conditional wage cuts as part of the financial recovery plan, but mechanics and flight attendants have not. Even the loan guarantees would not ensure that United can avoid bankruptcy. Indeed, federal loans could be made an integral part of a bankruptcy reorganization, said Buttrick of UBS Warburg. He added that a federal bankruptcy judge could void existing union contracts and even the employee stock ownership plan if he deemed it necessary. Typically, shareholders are wiped out in a bankruptcy reorganization. US Airways' Chapter 11 filing may make it more difficult for United to avoid bankruptcy, analyst Ray Neidl suggested. "I'm coming around to believing that UAL will go into Chapter 11 if they don't get major cost concessions pretty quickly -- at least by the end of the year," Neidl, of Blaylock and Partners, told the Associated Press. "This probably further tightens capital markets for them and is going to make it tougher" to get needed financing. "This is drawing a lot more attention to the fact that even with this lo= an guarantee program, it doesn't mean United would be saved," Morningstar analyst Jonathan Schroeder told the Associated Press. "They have a lot more cash than US Airways and more resources they can draw upon," Schroeder said. "But they're still losing hundreds of millions of dollars, and they have some debt repayment (totaling $900 million) coming up in the fourth quarter." Chronicle staff writer Carolyn Said and Chronicle news services contributed to this report. / E-mail David Armstrong at davidarmstrong@sfchronicle. com. United's troubles by the numbers=20 2,950,000,000: Amount of money UAL, United's parent company, has lost si= nce=20 January 2001, in dollars 86,000: Number of employees 16,000: Number of employees in the Bay Area 180: Number of flights per day at SFO=20=20 20: Number of flights per day at Oakland airport 6: Number of flights per day San Jose airport Sources: UAL Corp., Chronicle research <BR><HR> UAL's falling stock price The stock of UAL, United's parent, was struggling before 9/11. Then thin= gs=20 got worse. $39.63: Closing price of UAL stock on Jan. 2, 2001 $3.80: Monday's closing price of UAL stock ---------------------------------------------------------------------- Copyright 2002 SF Chronicle