United set for 8 weeks of critical decisions By Marilyn Adams, USA TODAY CHICAGO =97 Whether the nation's second-largest airline lives or liquidates= =20 could be decided in the next eight weeks. Almost two months after filing for bankruptcy reorganization, United=20 Airlines' parent, UAL, faces a tangle of critical decisions about its=20 future that it must make soon if it is to have any hope of survival. But=20 United is a managerial Rubik's Cube whose problems are interlocking and=20 solutions confounding. While operating 1,700 flights a day worldwide, UAL=20 must in coming weeks cut costs dramatically by renegotiating contracts with= =20 labor unions, regional airline partners and the companies that own the=20 leases or hold debt on 80% of its jets. It must convince its bankers that=20 its negative cash flow is improving, or they could call in the crucial=20 loans that keep United aloft, shutting it down. There could not be a harder= =20 time for UAL to reinvent itself. The company announced Friday that it lost= =20 $1.5 billion in the fourth quarter and $3.2 billion for 2002 in the midst=20 of the airline industry's worst slump in history. A U.S. invasion of Iraq,= =20 and fears of retaliation, could further chill the economy and scare off=20 passengers. If the U.S. starts bombing Iraq, airline traffic could suddenly= =20 drop and fuel prices spike, soaking up precious cash United needs to fly=20 and possibly destabilizing it and other cash-strapped carriers. "If United= =20 fails, it's likely to be because of what happens in the next several weeks= =20 and months with its financing, labor contracts and the possibility of war,"= =20 says Philip Baggaley, senior airline analyst for credit-rating firm=20 Standard & Poor's. Adds Mo Garfinkle, an aviation consultant who once=20 advised United: "It is a task so difficult, so enormous, it will be=20 miraculous if they achieve it all." Among the issues that UAL executives are grappling with: =B7 Reorganization plan. It must issue a preliminary business plan for= =20 reorganization and sell it to creditors, lenders, labor unions, customers=20 and Wall Street. The plan will set the direction for everything else it has= =20 to do. CEO Glenn Tilton and his team presented the plan last week to UAL's= =20 directors and are scheduled to meet today with the creditors' committee.=20 Without exaggeration, Tilton calls the document UAL's "plan for=20 transformation." The company has declined to make Tilton available for an=20 interview or discuss details of the plan. =B7 Labor contracts. It must renegotiate labor contracts by March with= =20 increasingly hostile unions representing pilots, mechanics, flight=20 attendants and other workers. Failing that, it could seek the court's=20 permission to break the contracts and impose new, cheaper ones. That could= =20 alienate the employees who interact with United's passengers every day. =B7 Fleet. UAL must decide which planes it's keeping or rejecting. The= =20 bankruptcy code gives airlines a 60-day stay on making aircraft payments,=20 but UAL's grace period expires Friday. The company has asked the court for= =20 more time so it can continue negotiating for better terms on leases and=20 other financing deals covering about 460 of its 567 jets. If it can't=20 strike better deals before time runs out, UAL will have to make its=20 payments current on the jets it wants to keep or risk them being=20 repossessed. One complication is that UAL is still trying to identify and= =20 track down some of the several thousand parties that have claims on more=20 than 100 jets used as collateral for loans. Another problem is UAL's=20 uncertainty about other aspects of its plan =97 such as its future labor=20 costs =97 hampers productive negotiations with aircraft lessors. Lessors= also=20 are wary of giving a big carrier like UAL better terms because that could=20 further depress already weak values for new and used airplanes at other=20 carriers. It's a process that United executives anxiously call a=20 high-stakes game of musical chairs. =B7 Regional airlines. UAL must rework contracts with its regional=20 airline partners to possibly let them handle more flying on small,=20 less-expensive regional jets and perhaps at reduced rates. Unsettled labor= =20 issues touch on this problem, too, because United's pilots contract limits= =20 how much RJ flying the regionals can do. The partners =97 independent=20 companies that have ordered millions of dollars of RJs =97 are worried.=20 Atlantic Coast Airlines, one United Express carrier that gets 80% of its=20 business from United, has asked the court to force United to spell out what= =20 role Atlantic Coast will play in future plans. =B7 Financing. UAL must demonstrate to four big banks that lent UAL=20 $800 million to operate that it can repay them later =97 and that it= deserves=20 an additional $700 million in months ahead. United this month must meet the= =20 first of monthly cash-flow targets. Although it's expected to hit=20 February's goal, future months set progressively higher targets that will=20 be harder to achieve. At UAL's Chicago-area headquarters, the mood is=20 determined. Executives say they haven't taken a day off since the filing. A= =20 small army of specialized consultants and lawyers is helping them shoulder= =20 through the mountain of work under impossibly tight deadlines. Employees=20 note with irony how expensive bankruptcy is. Tilton, who signed on to run=20 UAL just last September, is poised to start promoting his business plan.=20 Even before it's unveiled, the plan =97 which calls for a new low-fare=20 airline subsidiary =97 is under fierce attack from union leaders. Last week,= =20 they angrily called it a "breakup" of the airline. Pilots, flight=20 attendants and other work groups that already have sustained thousands of=20 furloughs could be hurt by more lost jobs or lower pay under that plan. One= =20 out of every five United employees has been furloughed since the Sept. 11=20 terrorist attacks, and unions are braced for announcements of many more=20 layoffs . "We will oppose management's breakup plan by every lawful means=20 available to us," says Paul Whiteford, pilots union chairman. His anger=20 stems partly from the fact that 92% of United's pilots recently voted to=20 take voluntary 29% pay cuts from January to April to help United cut costs= =20 quickly in bankruptcy. Flight attendants also agreed to pay cuts. A shift in strategy People briefed on the low-fare concept say as much as 30% of United's=20 flying capacity might be shifted to the new low-fare airline subsidiary=20 that would have a separate identity, fleet and workforce. The new airline=20 would fly from United's hubs, such as United's home base of Chicago O'Hare,= =20 to leisure destinations, and connect with regular United flights at hubs.=20 Tilton, who was previously vice chairman of ChevronTexaco and CEO of=20 Texaco, has become convinced a low-fare airline operated within UAL is=20 critical to its survival and can succeed =97 even though it's never been= done=20 profitably by a traditional airline. His view is not unique. Delta Air=20 Lines last week announced the April launch of Song, a low-fare airline that= =20 will fly Boeing 757s between the Northeast and Florida. United is facing=20 threats from aggressive discounters undercutting its fares: Frontier=20 Airlines at United's Denver hub, American Trans Air at Midway Airport in=20 Chicago, and Southwest Airlines on the West Coast, among others. But United's unions suspect management wants inexpensive, separate labor=20 contracts for the new unit and plans to take job applications from anyone=20 without regard for United employees' seniority. The controversial venture=20 could draw UAL into an ugly, public court fight with its unions, who have=20 two seats on its board. The conflict is the latest example of=20 labor-management tensions that have bubbled within UAL for years despite a= =20 1994 deal that brought employees majority control and broad influence over= =20 UAL's governance in exchange for billions of dollars in concessions. "Given labor-management relations at this airline, this low-fare airline=20 strategy is a good concept in theory but could be nuclear in practice,"=20 Garfinkle says. Labor leaders don't want employees' honeymoon with Tilton=20 to end. Since arriving, Tilton has worked hard reaching out to employees=20 craving leadership after the terror attacks. On a January trip to Tokyo's=20 Narita Airport to christen United's renovated terminal, Tilton was met by=20 employees wanting his autograph. "I'd be lying if I told you the=20 labor-management relationship at United is wonderful right now. But it's=20 better than it's been in my 14 years here," says Greg Davidowitch, the new= =20 chairman of United's flight attendants union. "We don't want a company of=20 people who are scared." There are no plans to amputate parts of the airline's massive network, such= =20 as the valuable trans-Pacific routes. United has been closing individual=20 international cities that apparently weren't profitable. Last month,=20 Caracas, Venezuela; Santiago, Chile; and Dusseldorf, Germany, dropped off=20 United's route map. Next month, New Zealand will, too. The painful cuts=20 reduce losses but risk losing customers. "I am staying with United, but I am very disappointed in the number and=20 severity of the service cutbacks," says Jennifer Eck, a Chicago-based human= =20 resources director who flies to Latin America. "Now, I am almost forced to= =20 fly American to those markets." In a clear outreach effort to coveted=20 business fliers, United just launched a sale reducing some last-minute=20 business fares 40% from Chicago and Denver and on connecting routes. That=20 has brought an encouraging uptick in bookings, although UAL officials won't= =20 say exactly how much and whether revenue is up as well. It could be a sign= =20 of things to come. United and other traditional airlines have to revamp=20 their fare structures and close the wide gap between leisure and business=20 fares to survive. The throngs of $2,000-a-ticket business fliers haven't=20 returned since the recession hit, and they might never come back. Amid=20 their turmoil, United executives and employees can't help but brag about=20 the kind of airline that passengers see every day. For the first 11 months= =20 of 2002, latest figures available, the government ranked United No. 1 among= =20 the largest carriers for on-time flights. "Despite everything that's going= =20 on, our people are doing an extraordinary job," says Davidowitch, a flight= =20 attendant from New York. "When the whole world is out there saying, 'You're= =20 going to fail,' that's really inspiring." 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