- The Washington Times - Wednesday, February 1, 2006

UAL Corp., the parent company of United Airlines, emerged from the longest bankruptcy in U.S. history yesterday with less debt, lower costs and fewer employees.

But the nation’s second-largest airline still is losing massive amounts of money and faces a difficult year because of fierce competition and the high price of fuel.

United cut $7 billion in costs, eliminated $13 billion in debt and pension expenses and shed about 25,000 jobs during a bankruptcy that began in December 2002.

United Chairman and Chief Executive Officer Glenn Tilton said the airline can reduce costs further.

“We have achieved a great deal in our restructuring to reposition this company and build upon our assets, an unrivaled global network and our dedicated employees. We can be better. We are in a very competitive industry, and we take nothing for granted,” he said.



United likely will not make money this year, analysts said.

“Probably not. Particularly with fuel prices where they are. But they have been narrowing their losses every year in bankruptcy,” Standard and Poor’s senior airline credit analyst Philip Baggaley said.

The Elk Grove, Ill., company had predicted jet fuel would cost $1.48 a gallon this year before revising its estimate to $1.81 a gallon last week. United predicted it would break even if fuel remained at $1.48 a gallon, but the revised estimate would increase operating costs by an additional $885 million this year.

“That will take the company from making money in 2006 to losing money,” said Helane Becker, airline industry analyst at the Benchmark Co.

All airlines are struggling with the same record-high fuel costs, Mr. Baggaley said, so United isn’t at a particular disadvantage. But it does have a vast network and a massive fleet of 460 aircraft to support.

United eliminated 107 airplanes and negotiated lower leases on the rest of its fleet to save $850 million a year.

Analysts agreed with Mr. Tilton that the airline can make more cuts.

“They’ve gone down the right path. They just have to go a little further,” said Ray Neidl, airline analyst at Calyon Securities.

United may consider more outsourcing and spreading flights out throughout the day to cut labor costs, Mr. Baggaley said.

The company’s new stock begins trading today, when it issues 125 million shares on the Nasdaq Stock Market.

Chief Operating Officer Pete McDonald yesterday greeted employees at Chicago O’Hare International Airport and in San Francisco. The airline will have difficulty repairing relations with unions, which made huge sacrifices to keep United aloft.

Union officials called on United’s management to make the most of the billions of dollars in wages and pensions workers lost.

“With bankruptcy behind us, there are no more excuses, no room for error and no second chances,” said Capt. Mark Bathurst, chairman of the Air Line Pilots Association’s master executive council.

The union of flight attendants is skeptical that Mr. Tilton and his team can help United succeed.

“United Airlines will never realize its potential under this management team,” said Sara Dela Cruz, spokeswoman for United’s 16,500 flight attendants.

The bitterness of union employees stems from two wage and benefit cuts during bankruptcy. New labor contracts went into effect in May 2003 that reduced labor costs by $2.56 billion annually for six years. United completed a second round of labor cuts in July 2005 to save an additional $700 million annually in labor costs.

Richard Aboulafia, airline analyst at the Teal Group Corp., said Mr. Tilton’s team has shown some promise.

“They don’t inspire great things from the labor-management standpoint. On the other hand, they seem to have good ideas,” he said.

Adding 35 international flights a day was one important decision, Mr. Aboulafia said, because international flights are highly profitable.

“You’re seeing some signs of hope,” Mr. Aboulafia said. “One of their greatest strengths just might be that they are too big to fail.”

Also yesterday, a judge in Independence Air Inc.’s bankruptcy case approved United’s $4.3 million bid for the lease on Concourse A at Washington Dulles International Airport, which Independence built for $21 million in 1999, when it was Atlantic Coast Airlines. Moving into the 36-gate concourse will allow United to boost regional jet service at Dulles.

With United’s emergence, Northwest and Delta remain in bankruptcy. While merger rumors swirl around those two airlines, United is unlikely to participate in consolidation, Ms. Becker said.”The time to do a merger would have been during bankruptcy. I think it’s unlikely at this point,” she said.

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