- The Washington Times - Wednesday, December 11, 2002

The storied history of United Airlines has been that of an industry and corporate pacesetter. At the beginning of the Great Depression, one of United's subsidiaries became the first airline to provide flight attendants. More than half a century later, in 1984, United became the first airline to serve all 50 states. Ten years later, when it exchanged 55 percent of its stock for wage and work-rule concessions from its pilots, mechanics and non-union workers, United became the largest employee-owned firm in America. By 1997, United's stock hit $100 per share. Two years later, with United "making money hand over fist," as the Wall Street Journal put it, Fortune magazine named United as one of the 10 best long-term stock investments. And then things got very nasty very quickly for United.

The tech bubble burst; lower-cost airlines, modeled after still-profitable Southwest Airlines, proliferated and surged; United's pilots recovered from their sickout in time to extract a very pricey contract from the firm they partly controlled; terrorists attacked the United States with four hijacked airliners, two of which were United's. Then air travel, which had already fallen as the economy entered recession at the beginning of 2001, collapsed. United lost buckets of money during the last three years, including more than $4 billion since the beginning of 2001. Following the Air Transportation Stabilization Board's blistering rejection of its petition for a $1.8 billion loan guarantee, United set another industry standard this week by becoming the biggest failure in aviation history.

Monday's bankruptcy filing occurred less than two weeks after United's militant mechanics overwhelmingly rejected a $700 million cost-cutting agreement that would have reduced their pay by up to 7 percent. Now, their shares are worthless. Moreover, if United is to emerge from bankruptcy as a viable airline, its workers will have to offer significantly higher wage and work-rule concessions than they have considered to date. This is particularly true for its pilots, some of whom earn more than $300,000 per year for working 80 hours per month. For the mechanics, the $700-million agreement they rejected earlier this month will seem like a pittance. Currently, United's labor costs of $4.60 per seat mile (a standard airline unit of measure) is nearly 60 percent higher than Southwest's and 30 percent higher than that of Continental, which was forced to declare bankruptcy a second time before it obtained the necessary productivity-enhancing work-rule concessions from its unions.

Unlike Continental, United may not get a second chance to make things right in an industry plagued by overcapacity. Indeed, several of the industry's most prominent firms have entered bankruptcy and never returned including Pan Am, TWA, Eastern and Braniff. In addition, United is in much deeper trouble than it had earlier indicated. United previously had reported losing $5 million per day last month. Now, it acknowledges that it expects to lose about $21 million per day in December and between $10 million and $15 million per day in January. That's an astonishing $1 billion over two months.

Concessions will have to be huge and they will have to be immediate. Otherwise, the once-highflying United will face liquidation. If the mechanics' vote early this month is any indication, it is not at all clear that they regret that their high-cost airline's bankruptcy destroyed their equity investment. They need to realize that they now have one final opportunity to protect the vast majority of their jobs by being as flexible as possible. But that window of opportunity will likely close rather quickly.

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