UAL cites improvements in its financial situation By Marilyn Adams, USA TODAY United Airlines CEO Glenn Tilton praises United's progress since its December bankruptcy-court filing and says "speculation about our company's future is now abating." His reference on Friday to liquidation warnings capped a week when three of the airline's big unions ratified concessionary contracts, a major feat. Wage, benefit and productivity concessions by all employees could save United parent UAL $2.5 billion a year over six years. New contracts took effect last week. The risk of liquidation "is not something I obsess over," said Jake Brace, UAL's chief financial officer, in a late-April interview. "We have made dramatic changes to our cost structure, dramatic improvements to our cash flow." Big changes are also coming to management. United announced Sunday its new executive vice president for customers, handling sales, marketing and advertising, is John Tague, 41, ex-CEO of aggressive discounter ATA Airlines, a fierce United competitor. The surprise appointment signals how serious Tilton is about confronting United's low-fare rivals. UAL's road out of bankruptcy protection is still treacherous and long. The economy remains stalled, severe acute respiratory syndrome (SARS) is still scaring travelers off Asia flights, and UAL has yet to develop a definitive business plan. Given its deep cost cutting, first-quarter results for United parent UAL are worrisome, some experts say. Despite interim labor-cost cuts that have been in place for months, UAL posted a $1.3 billion net loss, up from a $510 million net loss a year earlier. UAL ended the quarter with $956 million in unrestricted cash, and has since pocketed a $365 million tax refund that it extracted from the IRS with a lawsuit. But UAL's operations burned through an average of $2 million a day in cash in the quarter. Its pretax loss margin was 30%, worse than the 25% loss margin at American Airlines parent AMR, which had no labor concessions. UAL burned cash even as it stopped payments on airport bonds and withheld payments on some planes. "I don't think United is out of the woods," says Dallas-based bankruptcy lawyer Stephen Stapleton, who has represented creditors in numerous airline bankruptcies, including UAL's. "These (labor) agreements give them a better chance of coming out. But there's still a possibility of liquidation." The first-quarter results don't even reflect the full brunt of SARS in April. Last year, 17% of UAL's revenue came from the Pacific, though much of that came from Japan, relatively unaffected by the virus scare. Judging from a report from Lufthansa, SARS probably has hit UAL hard. Lufthansa said last week it's parking 15 planes used on international routes because of SARS, the Iraq war and the economy. It said demand is off as much as 85% on some Asia routes. Among U.S. carriers, UAL has the greatest exposure to Asian regions hit by the virus, according to Standard & Poor's. Things should get better this summer. Fuel costs, which jumped 43.5% for UAL last quarter, are falling. Summer generates more cash than any other season. Labor contracts not only cut wages but also improve productivity. UAL soon will get $300 million to $400 million in federal war aid. And there will be more layoffs: UAL told the bankruptcy court Friday it plans to close its Indianapolis and Oakland maintenance bases. May and June domestic bookings are 3 to 4 percentage points higher than last year's. Brace says trans-Atlantic bookings are "much closer to normal" than during the war. Some analysts think UAL could be cash-positive by summer, and Wall Street experts familiar with its bankruptcy loans say the airline might not violate loan requirements in May or June as feared. The airline has work to do on its business plan, however, especially its vision for a low-fare carrier. From the outside, plans seem unclear. UAL originally said it would devote 30% of its domestic fleet to "Starfish," UAL's code name for the venture. But a court filing last week said all of its narrow-body domestic fleet could be used because of flexibility in the new pilots' contract. The airline has named a task force to explore various scenarios. Company officials now say Starfish might not launch at year's end. Meanwhile, some creditors privately question the whole Starfish concept and whether the airline's current management team has enough depth to drive UAL's future. In a sign of internal unease, several senior UAL executives have circulated résumés. Blaylock & Partners analyst Ray Neidl pegs UAL's liquidation risk at 10%, lower than before the labor deals, and its chances for post-Chapter 11 success at 40% to 50%. "That's if they have a strong business plan," he says. "I haven't seen a business plan yet, so that's a big if." *************************************************** The owner of Roger's Trinbago Site/TnTisland.com Roj (Roger James) escape email mailto:ejames@xxxxxxxxx Trinbago site: www.tntisland.com Carib Brass Ctn site www.tntisland.com/caribbeanbrassconnection/ Steel Expressions www.mts.net/~ejames/se/ Site of the Week: http://www.cso.gov.tt TnT Webdirectory: http://search.co.tt *********************************************************