United moves slowly, painfully =
By Marilyn Adams, USA TODAY
When United Airlines said in December 2002 it would need 18 months to res=
tructure its far-flung system, many outsiders doubted its bankruptcy case=
would take so long.
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United Airlines =
Two years later, United is still flying in bankruptcy and in the red, and=
an exit is not foreseen until deep into 2005 =97 if then. Thursday marks=
the second anniversary of the filing by the No 2 carrier, the biggest ai=
rline bankruptcy filing ever. And like a force of nature, the giant case =
continues to send shock waves as it lumbers forward.
Two years of pain =
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Dec. 9, 2002: United files for bankruptcy-court protection five days aft=
er being rejected for a $1.8 billion loan guarantee by the federal Air Tr=
ansportation Stabilization Board (ATSB).
Dec: 30, 2002: Bankruptcy court approves $2.5 billion bankruptcy financi=
ng.
March 13, 2003: The first SARS death is announced by the World Health Or=
ganization. Travel to and from Asia =97 a key region for United =97 plumm=
ets.
March 19, 2003: U.S. invades Iraq. Demand for international flights fall=
s.
April 30, 2003: Bankruptcy court accepts new contracts with United's six=
unions, saving the airline $2.5 billion a year.
May 2003: United shuts aircraft maintenance centers in Indianapolis and =
Oakland.
Dec. 18, 2003: United seeks federal loan guarantee for second time.
Feb. 12, 2004: United launches Ted, its low-fare carrier.
March 8, 2004: United announces new regional airline partners to fly Uni=
ted Express routes.
April 8, 2004: Congress passes legislation to help airlines and other co=
mpanies temporarily cut pension costs.
June 28, 2004: ATSB denies United's second loan guarantee application.
Oct. 2004: Oil tops $50 a barrel. Jet fuel prices hit record highs.
Oct. 6, 2004: United says it will shrink its jet fleet, reduce domestic =
flying and increase international flying to cut losses.
Nov. 4, 2004: United tells its unions it must terminate pensions and cut=
pay again to attract exit financing.
Source: USA TODAY research =
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Bankruptcy by the numbers =
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21,000
Jobs shed since Chapter 11 filing
$142 million
Fees incurred by United for bankruptcy lawyers and consultants
$3.7 billion
Net losses since the filing
9,000
Court docket entries to date in the case
$50 billion-plus
Creditors' claims to date
Source: USA TODAY research =
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Today, Chicago-based United is on the brink of the single-biggest pension=
default in history, an act that would shift billions of dollars in costs=
from the airline to a federal agency. It's asking unionized employees fo=
r a second round of pay cuts that would bring the total reduction to $3.2=
billion a year. A pension default and a new round of $700 million in ann=
ual cuts could force other airlines to rip up their labor contracts to st=
ay competitive. =
It's overhauling its flight schedule, launching routes to China and testi=
ng the limits of bankruptcy laws to reduce debt.
"This is a restructuring that's breaking new ground," United CEO Glenn Ti=
lton said in an interview with USA TODAY.
>From the beginning, the case has unfolded like a melodrama. =
United filed for protection from creditors 15 months after the Sept. 11 a=
ttackers drove one of its jets into the World Trade Center, and another i=
nto a Pennsylvania field. Just a few months after filing, United and othe=
r airlines were grappling with new catastrophes: the war in Iraq and the =
SARS epidemic. =
'One horrendous thing after another' =
This year, the nightmare has been high fuel prices, which will cost Unite=
d $1 billion more than planned.
"It's been one horrendous thing after another," says Capt. Steve Derebey,=
a spokesman for the Air Line Pilots Association. "I keep waiting for the=
locusts."
The most public setback has been a government board's repeated refusal to=
grant United a federal loan guarantee to help it land $2 billion in fina=
ncing. The first denial by the Air Transportation Stabilization Board, in=
December 2002, precipitated the Chapter 11 filing. The second, in June, =
set the stage for a new round of painful cost cutting aimed at restoring =
profitability even with record fuel prices and cheap fares.
"Complex Chapter 11s take a long time," says Boston-based bankruptcy lawy=
er Jon Schneider, who has worked on large airline cases in the past. Unit=
ed still lacks a business plan for operating outside bankruptcy, he said,=
"because the economics of this industry are so difficult."
With fuel prices draining cash, United's bankruptcy lenders recently waiv=
ed their financial performance requirements for three months because othe=
rwise United would have defaulted.
Sheer numbers tell the story of the mammoth bankruptcy. As of Tuesday, ca=
se No. 02-48191 in the bankruptcy court in Chicago contained 9,043 docket=
entries. Through midyear, United had been billed $142 million by bankrup=
tcy lawyers, accountants and consulting firms working on the case. United=
's workforce has shrunk to 62,000 workers, off by about a quarter from tw=
o years ago. Those who remain are working harder, earning less and can ex=
pect smaller pensions.
Inside the company, the stress of change is ever present. Rumors fed by f=
ear and uncertainty fly through the company on transcontinental flights a=
nd in Internet chat rooms.
"There's a rumor a day," Derebey says. =
But Tilton and other executives are encouraged by what they see as progre=
ss. Although United is still posting large losses, the size of those loss=
es is generally shrinking. United's unit costs =97 what it spends to fly =
one seat one mile =97 are gradually falling. Its on-time and lost-bag per=
formance have been among the best in the industry.
In the midst of bankruptcy, United earlier this year launched an airline-=
within-an-airline, Ted, to compete with discount carriers at their own ga=
me in Chicago, Denver, Washington and elsewhere. Although the company won=
't divulge its financial performance, Ted appears to be putting pressure =
on competitors.
In Chicago, for example, United competitor ATA Airlines, a discounter fly=
ing from Midway, filed its own Chapter 11 bankruptcy this fall when it ra=
n short of cash.
Treacherous times ahead =
As hairy as the last two years have been for United, the next several mon=
ths could be the most treacherous.
Incensed by new cost cuts, United's largest union, the International Asso=
ciation of Machinists, recently asked the court to oust United's manageme=
nt team and install a trustee to run the company. The IAM backed off afte=
r United agreed to hire a consultant to analyze the business plan for the=
union.
Aircraft investors last month tried to repossess 14 United jets because o=
f a dispute over the leases. The airline was forced to get an emergency c=
ourt order to keep flying the planes.
But United's demand for new pay cuts and new, cheaper pension plans promi=
ses to be the most toxic battle. The flight attendants union has vowed to=
disrupt flights if that happens, and the IAM warns of repercussions as w=
ell.
"This airline cannot survive without loyal employees," says Robert Roach,=
IAM general vice president =
United now hopes to exit bankruptcy in fall 2005, more than a year after =
original expectations. Between now and then, United must win new labor co=
ncessions, resolve its pension plans, get deals with aircraft investors a=
nd keep creditors satisfied.
"That's a big if," says airline analyst Philip Baggaley of credit rating =
agency Standard & Poor's. "This story could still end in any number of wa=
ys."
Roger
EWROPS