- The Washington Times - Friday, January 31, 2003

CHICAGO, Jan. 31 (UPI) — UAL Corp., citing the highest costs in the airline industry, said Friday it posted a fourth-quarter net loss of $1.5 billion, or a loss per basic share of $20.70.

The holding company whose primary subsidiary is United Airlines, the world's second-largest airline, said the loss included $77 million in special items and a non-cash tax expense. UAL posted a fourth-quarter loss in 2001 of $308 million, or a basic share of $5.68, including special items.

UAL said its fourth-quarter operating revenues rose 18 percent to $3.5 billion. Passenger revenue for the quarter was up 12 percent from last year on a 6 percent capacity increase. System passenger unit revenue was up 5 percent year-over-year, as yields were 2 percent lower and load factor increased by 4 points.

United's load factor for the quarter was 72 percent, about a point higher than the average for other network carriers and more than four points higher than fourth quarter 2001.

UAL said for the full year its losses including the special items, widened to $3.2 billion, or $53.55 a basic share, from a full-year loss in 2001 of $2.1 billion, or $40.04 a basic share.

The company said its results reflected an effective tax rate of zero for 2002. At a statutory tax rate of 36 percent, the net loss for the quarter would have been $686 million, or a loss per basic share of $9.65, and a net loss for the full year of $2.1 billion, or a loss of $34.56 a basic share, excluding special items.

The company said United's flight completion rate for 2002 was 99.3 percent — an average of 13 flights per day were cancelled out of approximately 1,700, compared to 99 flights cancelled per day in 2001.

The company also said United experienced excellent load factors in 2002, including a record 90.7 percent on Dec. 30.

"The biggest single challenge United faced in 2002 was to reduce its costs, the highest in the industry, as the essential underpinning of becoming a competitive, sustainable airline," Glenn Tilton, chairman, president and chief executive officer, said.

He said the United slashed costs but made sure the cuts did not sacrifice reliability and safety.

"Those initiatives were simply not sufficient to address United's immediate and long-term issues," he said. "We now have the opportunity in Chapter 11 to make significant additional changes by working with our unions and others.

"By making the difficult but critical changes necessary to create a cost-competitive business, United can succeed consistently over time."

Looking ahead, Tilton said as the company moved forward in 2003, it will continue to compete through initiatives that take it toward a more compelling customer value proposition.

"We'll achieve that by focusing on areas such as superb operational performance, simplicity of fares, attractive routes, good connectivity and more," he said. "Our employees have clearly demonstrated their ability to focus relentlessly on operational excellence and customer service even as we go through the Chapter 11 process."

UAL filed Chapter 11 protection on Dec. 9, 2002, in the U.S. Bankruptcy Court for the Northern District of Illinois. In connection with its Chapter 11 filing, the company arranged for and has gained court approval of its $1.5 billion in DIP financing provided by Bank One, J.P. Morgan Chase, Citibank and CIT Group. The company has drawn $700 million on this facility. This financing will help provide UAL with the liquidity necessary to operate in the normal course throughout the reorganization process.

Since December, UAL said it has made steps forward in restructuring its operations, including reducing 2003 capacity by 6 percent as compared to 2002; reorganizing the company's executive team; realigning divisions; and completing plans to close certain reservation call centers and all U.S. City Ticket Offices.

In January, the company also closed stations in Latin America and Europe and announced plans to suspend operations to New Zealand in March. Overall, the company has to date identified approximately $1.4 billion in annual non-labor cost savings and profit improvements.

On the labor side, in December, the company implemented wage reductions of between approximately three and 11 percent for United's salaried and management employees, and was successful in collaboratively negotiating agreements on interim wage concessions of 9 percent to 29 percent with four of its six labor unions.

Looking ahead, UAL said it expects to report a significant loss for the first quarter of 2003. The company's domestic booked load factor is about the same as it was last year, though United said it expects that the mix of business traffic will be down.

United's overall international bookings are somewhat weaker, and the Pacific markets specifically are being affected by a significant increase in industry capacity in the region, the company said, adding United's outlook for the quarter could be affected by the developing situation in Iraq.

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