United files for bankruptcy; CEO says it's 'a new beginning'
CHICAGO -- United Airlines made the largest bankruptcy filing in aviation history Monday, saying it was the only way to keep the world's No. 2 airline flying after two years of heavy losses.
The Chapter 11 filing was the sixth-largest ever as measured by assets.
The suburban Chicago-based company has lost $4 billion in the last two years due to a slumping economy, flawed business strategies and the Sept. 11 terrorist attacks. It faced debt payments of $875 million later this week.
"We're in control of United's destiny," United CEO Glenn Tilton said in a telephone interview. "We've made a good decision for United. It is in fact Chapter 1. ... This is a tremendous opportunity for United to transform this company and to emerge stronger than ever."
Tilton told customers and employees at O'Hare International Airport that the carrier would keep flying. "We are now going to take this occasion to create a new beginning for United," he said.
Tilton said he expects the bankruptcy process to be completed within 18 months.
$1.5 billion in financing
At a bankruptcy hearing at 7 a.m., Chief Judge Eugene R. Wedoff issued orders allowing United to keep operating until another hearing Monday when he is to issue further orders allowing the airline to continue its operations.
United said it obtained $1.5 billion in financing from several banks to continue operating, and had $800 million in cash on hand.
An attorney for United, James Sprayregen, told the judge the company was losing $20 million to $22 million a day this month and desperately needed to cut costs.
The company and a coalition of union leaders were scheduled to meet Tuesday to begin talks about reducing costs.
The airline has promised to keep flying while it sheds costs under the auspices of a bankruptcy judge and overhauls its business plan to try to become profitable again. As of Monday's filing, United had assets of $22.8 billion and liabilities of $21.2 billion, the company said.
United operates about 1,700 flights a day, or about 20 percent of all U.S. flights. It has the most extensive worldwide route structure of any airline.
The bankruptcy filing will come at a steep price for the 83,000 employees who own 55 percent of the company. A bankruptcy court judge is almost certain to order wage and job cuts and could dissolve the employee stock ownership plan.
Two of United's unions, the Air Line Pilots Association and the Association of Flight Attendants, said both sides must work together during restructuring.
"Any successful restructuring of United in bankruptcy must involve continued cooperation and collaboration among ALPA, United management and all of the company's labor unions," the pilots' union said. "We look forward to those discussions."
The carrier's stock, which reached $100 a share in 1997, rose 10 cents to $1.03 a share in early afternoon trading Monday on the New York Stock Exchange.
Probably fewer flights
The bankruptcy restructuring also is likely to result in fewer flights. Experts say 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.
A spokesman for United's pilots union urged passengers Sunday not to abandon the airline during a bankruptcy filing.
"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," pilot Herb Hunter said. "The passengers shouldn't notice any difference."
Airline consultant Robert Mann said the company will have to keep the morale of United's workers from falling too low.
"It's certainly demoralizing to employees, and the risk is that it will somehow translate into less friendly service -- in effect getting customers in the middle of an emotional problem," said Mann, of R.W. Mann & Co. in Port Washington, N.Y.
On pace to lose an industry-record $2.5 billion this year, United had pinned its last hopes of avoiding bankruptcy on getting federal backing for $1.8 billion of a $2 billion loan that banks wouldn't otherwise provide. But the Air Transportation Stabilization Board, created last year to help the airline industry recover after Sept. 11, rejected United's request on Wednesday.
White House spokesman Ari Fleischer declined to comment on the bankruptcy filing. Fleischer said the Bush administration would not second-guess the stabilization board's decision.
The linchpin to United's proposal was $5.2 billion in labor cutbacks by 2008, but the three-member federal panel said the airline's business plan was financially unsound and a loan guarantee would have risked U.S. taxpayers picking up the tab.
United has struggled even more than other airlines during the industry's worst-ever slump. The carrier already had lost about $1 billion since mid-2000 by the time of the attacks 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 it hasn't come close to making up for revenue lost from the drop-off in business travel.
United's filing dwarfs all other airline bankruptcies. The previous largest was by Continental Airlines in 1990. United listed almost $25.4 billion in assets as of Sept. 30 -- more than twice Continental's when it filed.
It also is one of the 10 largest bankruptcies in U.S. history -- a list topped by the recent failures WorldCom and Enron. It is the 11th time a major U.S. airline has filed for bankruptcy since deregulation in 1978, including TWA three times.