- The Washington Times - Thursday, August 15, 2002

United Airlines said yesterday it would file for bankruptcy protection in the fall unless it succeeds with "urgent, significant and immediate" cost-cutting measures.
UAL Corp., the parent company of the world's second-largest airline, has some of the industry's most expensive labor contracts and an $875 million debt payment due in the fall that it could not pay with current revenue.
"The world has changed," said Jack Creighton, United's chairman and chief executive officer. "Revenue isn't coming back the way the industry expected. Demand isn't returning, fares remain low and the industry is grappling with how to respond."
Industry analysts described United's announcement as another sign of the airline industry's desperation caused by the sluggish economy and the September 11 terrorist attacks.
"It says the industry is in a heap of trouble," said David Swierenga, chief economist for the Air Transport Association, a trade group for major airlines. "When you have 15 to 20 percent reductions in revenues, you're really scrambling to get your costs down to a level to return to profitability. They are simply at the mercy of economic conditions."
United's announcement came one day after American Airlines the world's largest carrier said it would restructure operations to reduce debt and three days after US Airways filed for bankruptcy protection.
Debts that airlines have been running up will diminish their ability to grow, Mr. Swierenga said.
"The struggles we are seeing today will affect the industry for years to come," he said. "It's going to restrain the carriers' ability to invest in new airplanes, to expand when they have to pay their debt off first."
New security requirements are partly to blame for the airlines' higher debt, Mr. Swierenga said.
Mr. Creighton gave few details of the United restructuring, but industry insiders said labor unions would be asked to sacrifice a significant part of their wage and benefit packages.
The announcement steps up the pressure on the unions that so far have balked at pay cuts that United says are necessary to stem massive losses.
"Unless we lower our costs dramatically, filing for bankruptcy protection will be the only way we can ensure the company's future and the continued operation of our airline," Mr. Creighton said in a statement. The airline already said it would reduce capacity by 9 percent in the fall.
With a low possibility for success in meeting cost-cutting goals, Chapter 11 bankruptcy protection "may be the best thing that could happen to them right now," said Darryl Jenkins, director of George Washington University's Aviation Institute. "It will be very messy, because the pilots and mechanics will have to give up part of their wages."
The airlines' mounting debt resulted at least partly from management that was slow to respond, Mr. Jenkins said.
United officials said their restructuring plans are driven largely by federal government demands that the airline cut more costs before it can qualify for a $1.8 billion loan guarantee. United reported losing almost $1 million a day in the second quarter.
Last year, it lost a record $2.1 billion.
The Air Transportation Stabilization Board, created after the September 11 terrorist attacks to help the airlines, has hinted it would reject United's application for the loan guarantee.
The airline set a deadline of 30 days for reaching cost-cutting goals.
"Labor and employees are a big part of it, but there are a lot of vendors as well," said United spokesman Joe Hopkins.
Next month, the airline hopes to return to the stabilization board with evidence of more cost reductions to renew its chances for a federal loan guarantee.
"That's the goal over the next 30 days," Mr. Hopkins said.
UAL's stock dropped 29 cents yesterday to close at a 22-year low of $2.45 a share on the New York Stock Exchange. The stock has lost 53 percent of its value this week.

LOAD COMMENTS ()

 

Click to Read More

Click to Hide