This article from NYTimes.com has been sent to you by psa188@juno.com. Even by Bankruptcy Standards, This One Seems Different December 6, 2002 By MICHELINE MAYNARD and RIVA D. ATLAS The size and complexity of an expected bankruptcy filing by United Airlines suggests that it could take years for the airline to emerge from bankruptcy, and then probably as a radically smaller one, financial experts and bankruptcy lawyers said yesterday. Though a number of airlines have filed for bankruptcy protection - notably Continental, T.W.A., Pan Am, Eastern and lately, US Airways - a United reorganization stands to be different for two main reasons. Unlike the sickest of the bankrupt carriers, which had stripped their operations in some cases to the core before seeking reorganization, United is basically intact, meaning that disassembling and the resulting trauma lie ahead - a process that could easily last two years or more, and perhaps not even succeed on the first try. Continental underwent two attempts at reorganization before emerging from bankruptcy in 1993. Second, a United bankruptcy filing would be unusual because of the deep involvement of its unions in its corporate affairs. United is now making an intense push to line up as much support from unions and big creditors as possible ahead of what is expected to be a Chapter 11 filing. Because their primary motivation is to preserve jobs, the unions will have different priorities from other creditors. And if the unions do not support the company's reorganization plan, they could prolong the bankruptcy process and perhaps even disrupt United's operations. Even before a court filing, there is some speculation in aviation circles and on Wall Street that if United does not reach a consensus on a revival plan, its assets might ultimately be liquidated in bankruptcy court to pay off its debts. That possibility, while remote, points to the difficult path ahead for United as it follows other carriers down the bankruptcy path. United's employees hold 55 percent of its deeply devalued stock, along with three seats on the board and a loud voice in company affairs. Through their unions, the employees have not hesitated to express their displeasure with past management, leading to the ouster over the last 14 months of two chief executives. The airline is haunted by the warning in October 2001 from the chief executive then, James E. Goodwin, that United could face its demise in 2002 unless it dealt with the financial drain from its operations. Mr. Goodwin's prediction prompted United's unions, led by the International Association of Machinists and Aerospace Workers, to demand his resignation, and subsequently that of Mr. Goodwin's successor, John W. Creighton Jr., who warned this summer that a Chapter 11 bankruptcy filing appeared inevitable. His successor, United's current chief executive, Glenn F. Tilton, was quick to provide reassurance in September that bankruptcy was not a foregone conclusion. Mr. Tilton, a company spokesman said, met yesterday with the leadership of the Air Line Pilots Association, which represents United's pilots. Conversations took place "all day long," between management and machinists' union representatives, according to a union spokesman, Joe Tiberi. The unions' pivotal role at the company makes it very likely their representatives will be given seats on a creditors' committee or another official committee, said Joel Zweibel, who was the lawyer for creditors of Eastern Airlines, and recently retired as the head of the bankruptcy practice at O'Melveny & Myers in New York. In the Eastern bankruptcy, the unions had three seats on the committee, in an effort to ensure that employee concerns were addressed. The unions "often have different interests than other creditors," Mr. Zweibel said. Mr. Tiberi said he was not aware if the unions and the company had discussed how many seats the unions might seek on the creditors' committee, a decision that would be up to the court-appointed bankruptcy trustee. The machinists were represented on the creditors' committee at T.W.A., and have a seat on the committee dealing with the bankruptcy at US Airways, Mr. Tiberi said. United has retained the Chicago law firm of Kirkland & Ellis as its bankruptcy adviser. The machinists' union is represented by Lowenstein Sandler. United's other unions did not comment on their legal plans yesterday. A bankruptcy filing might prompt United to abrogate its labor agreements, which industry analysts say is the prime reason for the airline's high costs. Under Section 1113 of the United States Bankruptcy Code, companies have the right to ask a judge to cancel a labor contract. But there is a complicated set of conditions that must be met to win approval, bankruptcy lawyers said. If United tries to have its union agreements canceled, that might be expected to anger workers, who could then stage a slowdown by working according to the letter of their contracts. United's pilots employed such a strategy in the summer of 2000, snarling the airline's operations and alienating some travelers. If the employees stop working to their fullest, "United could go into a downward spiral," a bankruptcy lawyer said. The mere possibility that companies will ask the court to vacate their labor agreements is often enough to press both sides to reach a compromise. "It's like a threat to strike," said Harvey Miller, the former head of the bankruptcy practice at the law firm of Weil, Gotshal & Manges, and now a managing director of Greenhill & Company, an advisory firm. United continued work yesterday to secure about $1.5 billion in financing that would support day-to-day operations in a bankruptcy. It had sought about $2 billion before the federal aid panel rejected its request for loan guarantees. The company is likely to delay any search for an outside investor. When US Airways filed for bankruptcy last August, it had the promise of an investment from the Texas Pacific Group, which was outbid later by the Alabama pension fund. In the weeks when it might have been seeking a partner, United focused instead on the federal guarantees. "In some ways, it's too late," a lawyer experienced in airline bankruptcies said, adding that negotiations with outside investors were probably at least six months away. The rejection in a vote last week by United's mechanics of their share of contract concessions may be a sign of the difficulties that lie ahead in bankruptcy, said Wilbur L. Ross Jr., an investor in distressed companies, who once served as an adviser to creditors of airlines in reorganization, including Continental and T.W.A. "The thing I find most puzzling about this company," he said, "is that they can't get together with their workers. This is a very sad tale of worker democracy gone awry." http://www.nytimes.com/2002/12/06/business/06BANK.html?ex=1040189666&ei=1&en=00beb48626b33e90 HOW TO ADVERTISE --------------------------------- For information on advertising in e-mail newsletters or other creative advertising opportunities with The New York Times on the Web, please contact onlinesales@nytimes.com or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to help@nytimes.com. Copyright 2002 The New York Times Company