=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/2002/12/10/MN149878.D= TL ---------------------------------------------------------------------- Tuesday, December 10, 2002 (SF Chronicle) United's next battle is simply to survive/Bankruptcy shows airline bleeding= $20 million a day David R. Baker, Chronicle Staff Writer In bleak detail, United Airlines' bankruptcy filing Monday revealed a company bleeding $20 million a day -- a once-profitable business leveled by billions in debt, high costs and last year's terrorist attacks. United owes $21.2 billion to creditors that include the San Francisco Airport Commission, aircraft maker Airbus and the city of Indianapolis. The company's assets stand at $22.8 billion. Ticket sales have tumbled more than 30 percent from $16.9 billion in 2000 to an estimated $11.8 billion this year In the largest airline bankruptcy on record, United filed Monday for Chapter 11 protection from its creditors while it reorganizes. U.S. Bankruptcy Court Judge Eugene R. Wedoff in Chicago authorized the company to tap $800 million of the $1.5 billion in emergency financing United had lined up during the weekend. In spite of that infusion, United Chief Executive Officer Glenn Tilton warned employees that the months ahead would require sacrifice. The airline, with 16,000 employees in Northern California, will have to "go further and deeper in our efforts to reduce our costs," he said. But he insisted United could survive as a global airline, possibly emerging from the court's protection in 18 months. "Filing for Chapter 11 does not mean that United is going out of business," Tilton said in a prepared statement to the airline's employees. "In fact it means exactly the opposite." The world's second-largest airline sought to assure customers Monday that it would continue flying, honoring tickets and leaving its frequent flier program untouched. Although the company's long-range plans -- even before bankruptcy -- have called for reducing its 1,700 daily flights by 6 percent, those changes are not expected immediately. In contrast, the airline's latest round of cost cutting began Monday. The company, based in suburban Chicago, said it would reduce the salaries of its more than 10,000 salaried employees and officers, who are not represented by one of the company's powerful unions. Officers will lose 11 percent of their annual pay. Salaried and management employees will see their wages cut anywhere from 2.8 percent to 10.7 percent depending on how much they make. CEO IN BAY AREA WEDNESDAY United management will begin meeting with its unions today, with Tilton scheduled to visit Bay Area employees Wednesday. Most of the airline's unions had previously agreed to pay cuts totaling $5.2 billion in an effort to avoid bankruptcy court, but that agreement fell apart when the company failed to get a $1.8 billion government loan guarantee last week. Many industry analysts consider lowering United's labor costs one of the keys to the airline's revival. The airline machinists' union Monday warned its members of tough times ahead but urged them to help the airline through its financial crisis. "All United Airlines employees must work together to ensure our survival= ," International Association of Machinists district Presidents S. R. "Randy" Canale and Scotty Ford told union members in a joint statement. "We are all going to have to make some difficult decisions and make sacrifices." United's 83,000 employees have already endured a grueling year. The Sept. 11 terrorist attacks, coupled with a weak economy, led to a dramatic slowdown in travel. That triggered layoffs, temporary furloughs and the collapse of United's once-solid stock. "This has been going on since 9/11, so today isn't really any different," said flight attendant Gail Marie, working a Monday morning flight from Philadelphia to San Francisco. "But I think this time it's going to start to hurt the employees -- not the customers. I don't even know if I have job security anymore. So I'll just keep showing up for work until someone tells me to stop." The government decision that all but forced United into bankruptcy continued to provoke anger Monday. Rep. Ellen Tauscher, R-Walnut Creek, a member of the Aviation Subcommittee of the House Transportation Committee, said she was asking for a hearing into the Air Transportation Stabilization Board's rejection of United's loan guarantee application. The board was created last year to administer aid to airlines hurt by the Sept. 11 terrorist attacks. "Its purpose was to stabilize a patient on life support, not decide who should get the kidneys," said Tauscher, who added that the board had permitted itself to be influenced by United's competitors. She worried that the company's financial problems could spread. "It doesn't take the two decades I spent on Wall Street to figure out th= at the ATSB's inaction is causing a ripple effect in our already lagging economy, " she said. The pilots union echoed her criticism. Captain Duane Woerth, president of the Air Line Pilots Association, wondered why President Bush had chosen to intervene in other situations deemed harmful to the economy but would not help United. 'TERRORISM SCORED VICTORY' "Pilots across the country are saddened, disappointed and angry that an airline as eminent as United, which was used symbolically by terrorists to carry out mass destruction, is now in bankruptcy," Woerth said in a prepared statement. "It pains me to acknowledge that terrorism scored another victory, and this administration let it happen." The long list of United's creditors includes San Francisco International Airport, which the company owes about $7.6 million for rents and fees at the airport. But SFO spokesman Mike McCarron said United was current on all its bills. Although Chapter 11 will give United the chance to work out new terms wi= th creditors and cut costs, it will not necessarily ensure the company's survival. Lynn M. LoPucki, a UCLA law professor, said 20 to 30 percent of large companies that emerged from bankruptcy court fell back into it or liquidated in five years. Typically, such companies adopt reorganization plans that don't solve their fundamental problems. "It's the very same financial problems that drove them into bankruptcy -- they come out with those problems, and they do them in," said LoPucki. The bankruptcy judge, he said, must be willing to force a company to ado= pt necessary changes it wants to avoid. "A judge has to be in a position to say 'no' to a company," LoPucki said. "The parties will not automatically come to a resolution that is good for the company. They come to a resolution that is good for them." Stock in United's parent company, UAL Corp., closed Monday unchanged at = 93 cents. HOW FILING AFFECTS CONSUMERS, INVESTORS -- No immediate effect on travelers. United will continue to fly while it reorganizes under Chapter 11, a process that could take a year or two. -- Long term, the airline will reduce the number of flights as it struggles to regain profitability. As it reduces its capacity, it may ground some planes, cut flights and eliminate unprofitable overseas routes. -- United says no changes are planned for its frequent flier program. Industry observers say the airline probably will keep the program intact to hold on to its customer base. However, the airline may tighten rules in the future and require more mileage for trips. -- The cutbacks at United could prompt measures to increase efficiency in the rest of the airline industry. One result of those changes could be lower business fares. -- UAL's stock could be virtually worthless in bankruptcy. The stock, which closed at 93 cents on Monday, has plunged 99 percent since reaching $100 in 1997. Source: Chronicle staff and wire services. UNITED AIRLINES' DESCENT INTO BANKRUPTCY UAL Corp., the parent company of United Airlines, filed for Chapter 11 bankruptcy protection on Monday. Sept. 10, 2001 stock price: $30.82 Sept. 11, 2001: Two United planes are among the four hijacked by terrorists and crashed. Markets are closed; stock price drops to $17.50 after markets reopen on Sept. 17. Sept. 19, 2001: UAL announces 20,000 layoffs. Feb. 1, 2002: UAL announces $2.1 billion loss for 2001, a record for any airline. June 24: Company asks the federal government for $1.8 billion loan guarantee. Dec. 4: Government rejects UAL's request for financial assistance; the company files for Chapter 11 bankruptcy protection five days later. Monday's closing stock price: 93 cents . Sources: Yahoo.com; Commodity Systems Inc.; Associated Press Associated Press Graphic Chronicle staff writers Jim Brewer and George Raine contributed to this report. / E-mail David R. Baker at dbaker@sfchronicle.com. AIRLINE PROFITS = TANK Fortune magazine's list of the nine largest airlines showed airline prof= its=20 in the tank in 2001. All but one major carrier reported a loss. Only Southw= est, with a $511 million profit, escaped the red ink. . Revenues Profits Change Profit Profit from (or loss) (or loss) Airlines in millions 2000 in millions rank 1 AMR (American) $18,963 (6)% $(1,762) 7 2 UAL (United) 16,138 (17) (2,145) 9 3 Delta Air Lines 13,879 (17) (1,216) 6 4 NWA (Northwest) 9,905 (13) (423) 5 5 Continental Airlines 8,969 (9) (95) 3 6 US Airways Group 8,288 (11) (1,969) 8 7 Southwest Airlines 5,555 (2) 511 1 8 Alaska Air Group 2,141 (2) (40) 2 9 America West 2,066 (12) (148) 4 Source: Fortune magazine ---------------------------------------------------------------------- Copyright 2002 SF Chronicle