=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/news/archive/2003/03/19/f= inancial1025EST0060.DTL ---------------------------------------------------------------------- Wednesday, March 19, 2003 (AP) United says liquidation possible without labor cuts DAVE CARPENTER, AP Business Writer (03-19) 07:25 PST CHICAGO (AP) -- United Airlines warned in a court filing that it could be forced out of business this year if unable to secure the deep labor cuts it's proposing in bankruptcy -- its bleakest assessment yet of its prospects. The statement was contained in a court filing late Monday in which it requested that its labor contracts be scrapped unless new agreements can be worked out by the first week of May. "Liquidation is a distinct possibility if United does not achieve its proposed labor cost reductions," said the company, which is seeking $2.56 billion in annual labor reductions. While liquidation has always been a risk if United's restructuring fails, it was one of the company's first direct acknowledgements that liquidation is a possibility as United struggles to recover at a time of severe crisis in the airline industry. Both the remark and the dire outlook could strengthen United's negotiati= ng case as it works to get long-term contracts in place. But analysts said it confirms the industry's worsening situation along with what has long been known -- that the world's No. 2 airline risks a Chapter 7 liquidation if it can't soon stem its continuing losses in bankruptcy. "We've all known it was a possibility," said Nicolas Owens, aerospace and defense analyst for Chicago-based Morningstar. "This is just them saying it's a possibility. They need to reduce costs. They're just spelling it out." United said it projects an operating loss of $877 million for the first three months of 2003, scarcely improved from the $927 million operating deficit in the fourth quarter despite aggressive cost cuts and interim wage reductions. Prospects of a war in Iraq have compounded its problems in bankruptcy, along with those of other carriers. Standard & Poor's said Tuesday it may lower its ratings for 11 airlines because war looks imminent. "Airlines, already battered by the effects of the Sept. 11, 2001, attacks and their aftermath, now face further financial damage from a war," the credit rating agency said. "The airlines have already been hurt by high fuel prices and the depressing effect of uncertainty on business activity." United said in the 91-page memorandum outlining its court motion that it has experienced a dramatic recent drop in international bookings, which it said have dropped precipitously throughout the industry. It said it has lowered its near-term revenue forecast through June by $2= 98 million from projections made just weeks ago, and said jet fuel costs will be $300 million higher than expected for 2003 due to recent spikes in the price. An analyst for Lehman Brothers raised the likelihood of a United liquidation to 50 percent from 30 percent based on the document, saying it paints a challenging financial picture for the airline and calls its prior disclosures into serious question. "Eroding industry revenues, soaring fuel prices and revenue disclosures made by United in a court document last night give us pause about the company's prospects of successfully reorganizing," analyst Gary Chase said Tuesday said in a research note. In one potentially positive sign for labor negotiations, the flight attendants' union issued a statement downplaying the chances of liquidation and pledging to help ensure its survival. "Liquidation is not an option for United Airlines," the union said. Besides additional wage cuts that could be put into place by April 15, United said it is stepping up its efforts to lobby the government for financial assistance. Despite the contract dispute, employees of United and other airlines are joining in the push for immediate emergency support for U.S. carriers in the event of an international conflict. The Association of Flight Attendants is organizing a day of demonstratio= ns and leafletting at U.S. airports next Monday to underscore the need to help the industry in a time of war, spokeswoman Sara Nelson Dela Cruz said. United continued negotiating with its unions, some seven weeks ahead of its new cutoff deadline. The pilots' and flight attendants' unions criticized United's court motion on Monday, but spokesmen for the unions and the company had no comment on the status of talks Tuesday. Shares in United parent UAL Corp. fell 7 cents to 77 cents in morning trading on the New York Stock Exchange. On the Net: www.united.com =20 ---------------------------------------------------------------------- Copyright 2003 AP