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United expected to file for bankruptcy

Friday, November 1, 2002

CHICAGO -- United Airlines, unable to stanch more than two years of swelling losses and spurned in a plea for federal assistance, will file Monday for federal bankruptcy court protection, a source close to the company said Sunday.

The Chapter 11 filing -- five days after a federal panel declined to help the world's No. 2 carrier cover its mounting debt -- would be the largest airline bankruptcy in U.S. history, and one of the nation's top 10 bankruptcies ever.

United operates about 1,700 flights a day, or about 20 percent of all U.S. flights. It plans to continue flying under bankruptcy protection. A later restructuring under a bankruptcy court would likely result in fewer flights, thousands of additional layoffs and other extensive cost-slashing.

A federal judge would be put in charge of overseeing the tangled financial affairs of United, which owes nearly $1 billion in overdue debt payments that would use up most of its remaining cash. United has been unable to stop more than two years of swelling losses.

United spokesman Joe Hopkins declined comment and said the airline would have no announcement Sunday.

The source close to the company, who spoke on condition of anonymity, said the filing would be in Chicago but would not provide other details.

Special weekend session

The company's board of directors met in special weekend session to discuss United's emergency. Hopkins would not confirm that the board, which recessed late Saturday, was in session again Sunday. But a union source, who declined to be named, said the board reconvened Sunday afternoon.

Union leaders have told their members a bankruptcy filing is imminent and unavoidable, and CEO Glenn Tilton has told employees it was becoming "a more likely outcome."

A spokesman for United's pilot union urged passengers Sunday not to abandon the airline in the event it files for bankruptcy.

"We're going to be flying airplanes, today, tomorrow, next week and next year," pilots spokesman Herb Hunter said. "We don't want people to give up on us, because we're going to come through this.

"This is going to be painful for the stockholders and the employees, but the airline's going to keep flying and we're going to come out of this stronger. The passengers shouldn't notice any difference."

Frequent-flier miles and basic fare levels are likely to be retained for the short term, although fare hikes are likely over the longer haul.

While trying to avoid bankruptcy, United had also been making contingency plans for months. Airline officials were putting the final touches over the weekend on $1.5 billion in debtor-in-possession financing, to be obtained from several banks.

United has enough resources to operate throughout bankruptcy but needs to swiftly cut further costs, said Ray Neidl, an airline analyst for New York-based Blaylock & Partners.

"If this thing keeps dragging on a long time it will mean the loss of customers and considerable resources," he said.

Bankruptcy of United threatens to spread turbulence throughout the Star Alliance network it shares with 13 other airlines -- in particular, to German airline Lufthansa and its lucrative business-class traffic across the Atlantic. United provides key connections for non-U.S. airlines that want to sell tickets into and out of the United States.

Elk Grove Village-based United, on a pace to lose an industry-record $2.5 billion this year, had warned for months a bankruptcy filing was likely if it didn't get a $1.8 billion federal loan guarantee. The Air Transportation Stabilization Board rejected the request Wednesday.

United proposed $5.2 billion in labor cutbacks by 2008 in its pitch to the government board, but the three-member panel found the business plan was not financially sound.

93 cents a share

United's 83,000 employees own 55 percent of the company. The carrier's stock, which could be wiped out in bankruptcy, closed at 93 cents a share Friday on the New York Stock Exchange.

United has been struggling even more than other airlines during the industry's worst-ever slump, a byproduct of a weakened economy and the Sept. 11, 2001, attacks. The carrier already had lost millions since mid-2000 because of labor turmoil, the industry's highest costs and several failed strategies, including a costly and time-consuming bid to acquire US Airways -- itself now in Chapter 11 bankruptcy.

United cut service and laid off nearly 20,000 workers after the terrorist attacks, but hasn't come close to making up for revenue lost from the drop-off in business travel.

The filing would dwarf all other airline bankruptcies. The previous largest was by Continental Airlines, which filed Chapter 11 in 1990.

It also would be one of the ten largest bankruptcies in U.S. history -- a list topped by recent failures WorldCom and Enron. It would 11th time a major U.S. airline has filed for bankruptcy since deregulation in 1978, including TWA three times.


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