Bankrupt United Begs for More Time

[Airbubba]

United Asks Judge for Extension

Reorganization Plan Won't Be Ready Until Late Summer, Carrier Says

By Keith L. Alexander
Washington Post Staff Writer
Friday, March 19, 2004; Page E03


UAL Corp.'s United Airlines yesterday asked a bankruptcy court judge for more time to complete its reorganization, saying it needs an additional two months or so to shore up its pension plan and get a response on its bid for federal loan guarantees.

In the filing, which United attorneys plan to officially present at a hearing in Chicago today, United said it plans to emerge from Chapter 11 bankruptcy proceedings late this summer, as opposed to June 30. U.S. Bankruptcy Court Judge Eugene C. Wedoff must give his approval for United to keep the exclusive right to file a reorganization plan until the end of June. That period expires April 8.

It's the second time United has requested an extension. After the airline filed for bankruptcy in December 2002, it said it planned to emerge within a year. But the airline later sought more time, saying it would instead emerge by the June date.

The extra two months or so would give the airline the time it needs to "complete its restructuring methodically and systematically, rather then emerge prematurely," United said in the filing yesterday.

The airline is wrestling with how to fund its $4.1 billion employee pension plan, an obstacle that could prevent the Air Transportation Stabilization Board from granting the airline's request for a $1.6 billion loan guarantee.

The airline is also requesting more time to reorganize because ATSB officials are still at least a month or so away from making their decision, sources close to the board said recently.

"One key assumption is that Congress will enact pension relief legislation," the airline said in its filing. The airline said it was unlikely, however, that Congress would enact such legislation before the airline's next scheduled hearing on April 16.

As it has extended its stay in bankruptcy, United has faced another obstacle -- sharply rising prices for jet fuel, an airline's second largest cost after labor. Rising oil prices have pushed fuel prices above $1 a gallon in some areas. Two years ago, the price was below 70 cents.

Extended bankruptcy, said airline analyst Ray Neidl of Blaylock & Partners, could put United at risk of alienating its creditors. "Creditors start getting antsy when a company stays in bankruptcy too long," Neidl said.

While in bankruptcy, the airline has been able to cut about $2.5 billion in annual costs, largely in employee wages and benefits. Still, the airline lost $2.8 billion last year.

United has lined up several lenders, including J.P. Morgan Chase & Co. and Citigroup Inc., to provide $2 billion in exit financing, contingent on getting the loan guarantee package.

United is still trying to reduce the size of its fleet by negotiating with aircraft leaseholders. And the airline still must finalize a plan for replacing Atlantic Coast Airlines as its United Express affiliate at its Dulles International Airport hub.

Atlantic Coast plans to sever its relationship with United and transform itself into a low-cost, low-fare carrier called Independence Air later this summer. Atlantic Coast has asked the bankruptcy court to force United to officially reject its contract within the next 90 days.

As part of its increased battle with low-cost carriers, United yesterday said it plans to reinstate nonstop service between Dulles and Sacramento, Calif. The airline eliminated the route during its downsizing after the Sept. 11, 2001, terrorist attacks. Last week, JetBlue Airways announced it was initiating its own nonstop between the two cities for an introductory fare of $99 each way. Both airlines also added their third nonstop flights from Dulles to Oakland, Calif.

http://www.washingtonpost.com/wp-dyn/articles/A6207-2004Mar18.html

[411A]

IMHO, UAL needs to do two things to have a reasonable chance of success...

downsize the fleet (and especially get rid of the remaining B747's

and

reduce their payroll burden..ie: reduce salaries much further.
As the pilots are still rather well paid, they need to take the hit, big time. And this goes for management as well...large cut in pay there also.

[Ignition Override]

Thanks for the update Airbubba.

It is hard to imagine how many familys' security depend on not only United's but also USAirway's survival-never mind the thousands of careers. I remember what an America West 757 Captain told me years ago when they were in serious trouble-"I just put one foot in front of the other".

411A: It is encouraging to read that you recommend that both mgmt and labor take the pay cuts, however hard it is to keep certain mgmt. people onboard in stormy seas. To me, it is refreshing to see various people acknowledge that the pain needs to be spread around, and not just focused on any one group, which should include leaseholders, fuel, catering services. As a matter of fact, at one large US airline, two of the major stockholders reportedly lease Airbus aircraft back to the operation, not just sell de-icing fluid and catering services etc to the company-these two guys make loads of money, even if their stock never goes back to its original "purchase" value. Woops!

Which reminds me, thinking of the major pay cuts at American, just how many dollar$ did AMR give to buy back its own "American Airlines" stock years ago? Over a billion? That profit must have come from many hundred$ of full flights, if not many thou$and$.

[fiftyfour]

Hope you guys in the States sort yourself out soon. Allowing bankrupt airlines to fly the atlantic is slowly killing our solvent airlines like BA and Virgin with unfair competition. In Britain, bankrupt airlines don't fly - they've blown it. You only fly if you are solvent, or for very short priods (a few weeks) under administration and only for those parts of the business that are profitable in their own right and capable of being immediately sold as a going concern to new owners.

[Hood]

You are absolutely right concerning unfair competition. United's administration is basically protectionism but do think George W will let them go under in an election year?

Having said that I wish all the employees at United well.

[None]

411 wrote: "IMHO, UAL needs to do two things to have a reasonable chance of success...

downsize the fleet (and especially get rid of the remaining B747's

and

reduce their payroll burden.."

[crewrest]

................and stop wasting money on a new paint job. Duh.

Why on earth must all the solvent European carriers compete against these bankrupt dinosaurs. :confused:

Everytime I hear the inane babble on 123.45 I want to shout.

Rant over, I'm off to the pub.

[YYC F/A]

IMHO, UAL needs to do two things to have a reasonable chance of success... downsize the fleet (and especially get rid of the remaining B747's

The 747's still work well for UA, particularly on the Australia and SE Asia routes where there is both a high pax and cargo demand. On the NRT flights UA has been consistently acheiving high pax load factors, not just in economy, but also in C and F classes on the 747, so it still works well for them in many of the high yield markets.

UA did get rid of the 727's, and I think the diversity of their current fleet is not superflous but does meet the route requirements of the many different markets UA serves. UA seems to be making good strides to getting out of bankruptcy and I know first hand that the UA today is a far different UA from that pre-September 11... A lot of the employee's were complacent and not customer focused, focusing more on their industry leading contracts. Times have changed, and while (as with every airline) some of the dinosaurs remain, most of UA's staff realise now more than ever that their future depends on their ability to be a much leaner, efficient and far more customer focused airline. When you see Purser's walking through the aisle thanking every F class customer one by one and by name for their business, when you see ramp and ground agents really working for on time perfomance, UA has achieved some of the highest on time performance and reliability stats recently, yes some argue that's because of schedule padding, but it's no more prevalent at UA than AA, NW, DL et al...

The concerns about the US carriers being able to operate in Chapter 11 (and how unfair that is to BA et al.) are valid, but this is not a United issue so much as a North America wide issue, many other US carriers have been in and out of Chapter 11, north of the border Air Canada is presently operating under the Canadian Chapter 11 equivalent...

Also, some would argue that many of the European carriers (if not BA) have been propped up by their governments for centuries, the 'State Funded European Flag Carrier' syndrome is only now starting to end with the EU stamping out the government handouts to their ailing airlines in favour of fair competition. Just look at Iberia.

Things are far from rosy at UA. But their has been a step change with Glenn Tilton at the helm and with the attitudes of the workforce, and I hope UA will rise again.

[Joe Mirabella]

Why must solvent American carriers have to compete with bankrupt carriers? And, why must Boeing have to compete with government subsidized Airbus?

[Jim Morehead]

Well...It is intersting that a lot of people have all of the solutions,but they really aren't practical ones.

The labor costs at UAL and some airlines ARE higher than at others. That's because UAL is a safe, good place to work and has a good training program and a Frequent Flyer Program and lots more.

In terms of competing against other while in bankruptcy, UAL and others are hardly undercutting others. The criticism by a handful of you across the pond (aaparently) should be directed at the bargain basement guys who run the prices down.

But you can't really blame them either post 9/11 and with a week economy. People need to work and need a job.

I don't think UAL has started fare wars. They may match some,but they aren't the reason fares are low.

I forgot to comment on a fw other things.

United had 44 747-400s and went down to about 22. They are using about 33 or so now in full schedule and others will not come back and have been sold.

I was a victim of the 747-400 situation before I retired and am in Vero Beach at a 400 Captain's house today who still flies.

In terms of downsizing...DUH. this has already been done. I think the 555 airplanes is now down below 400 and the number of employees has declined from about 103,000 to about 60,000. I know because I was one of them.

The pay has also fallen some 45% and the shaky pension plan was also downsized and that's why I left.

I don't think anybody at UAL needs to feel anything other than proud for the work they do and the pay they receive.

[Ignition Override]

YYC F/A: You made a point about the European Community's efforts at stamping out government funds to airlines; such subsidies have not happened for decades in the US. This is federal law.

I would like to point out a parallel here. It is very doubtful, is it not, that the EU will ever try to stamp out the huge stream of government funds to the civilian airliner manufacturing consortium which is known as Airbus?

Boeing has received contracts only for its military divisions (now including McDonnell-Douglas), and this has been the case for decades.

Maybe the fact that US airlines (I admit that overcapacity has always been a major industry weakness here) can often operate in and out of Chapter 11, is a way to allow a recovery, sort of like huge subsidies to a major manufacturer (i.e. Airbus), which prevents and immediate loss of jobs, and payment, in western Europe, of much better unemployment benefits than we have.

:hmm:

I posted this just before reading Mr. Mirabella's interesting comments. Strange coincidence. :oh:

Mr. Morehead clarified some things. Also, we airline employees made no decisions to commit our airlines to the 'wonderful' hub-and-spoke systems, which Southwest never relied upon. Our mgmts designed these condensed, very over-crowded, inefficient networks many years ago. Operating aircraft more hours a day, by one major definition, creates a low or lower-cost airline. Southwest crews seem to often fly the same plane for a few legs-we pack up, walk a while just to change planes almost every time we stop at a hub (about every second flight). This creates longer delays because an originating preflight is needed again at the next aircraft. Southwest FOs seem to rarely get out to do a walk-around, thereby saving much time.

[YYC F/A]

Hey Ignition Override,

Without joining the debate on Airbus vs. Boeing vis a vis subsidies et al, I would point out that subsidising an aircraft manafacturer is not the same as propping up an airline. Not that I am saying that any given aircraft manafacturer is being subsidised and any given air carrier propped up, Ahem!

Many European carriers will buy the aircraft product that suits them best, and not just "Airbus 'cos it's European". British Airways' longhaul fleet is exclusively Boeing with not an A330/340 in sight.

But to get back to the topic of UA (and US carriers) competing against European carriers, I don't think there are any clear answers. I personally don't agree with some of those on here who believe that flat out the European carriers have the total raw deal here by having to compete against insolvent government propped up US carriers and that these (US) carriers need to go. I think the issue is more complex than that. But if we look at the situation today, September 11th did hit UA and AA, as well as other US carriers harder than the European carriers. So (leaving party politics out of it), while I also don't think that BA, LH, KL et al should have to compete on an unlevel playing field, I also feel that some slack should be given to UA (and all the US carriers) where appropriate. I guess that was the point of the ATSB loan guarantee programme... :rolleyes:
September 11th did spark a bit of a chain reaction, but for UA and many of the majors, it was a wake up to reality check that made these carriers realise that they were operating inefficiently, often with poor management strategy, overpaid staff etc. This HAS changed at UA, as Jim points out, UA staff have already taken considerable pay hikes. I'm not familiar with left seat pay on the 744 at UA, but I can tell you that for the F/A and Cust Service staff, the wages recieved for the work done are at best modest, and certainly not exorbitant by any means.

I see both sides of the fence here, but to go back to UA, I would re-iterate that they have tens of thousands of hard working loyal employees who are trying hard to turn UA around, and yeah, UA still has a pile of crappy issues that need a giant sized pooper scooper. But they ARE a different carrier from the UA of 4 years ago, and I wish them all the very best as they go forward.

[Airbubba]

More analysis from yesterday's Chicago Tribune:

...Industry observers noted that it is not unusual for a company that has filed for bankruptcy protection to take more time to reorganize than first expected. But prolonging Chapter 11 proceedings isn't a good sign, they added.

"It tells you they are having a hard time building a plan that will be OKd by their creditors," said Todd Pulvino, associate professor of finance at Northwestern University's Kellogg School of Management. "It tells you that their assets are probably worth less than they hoped."

United, which filed for bankruptcy protection in December 2002, is waging a fierce struggle against smaller, lower-cost airlines. Since that time the carrier has cut labor costs by $2.5 billion a year, reduced aircraft ownership costs by $900 million a year and dropped some unprofitable routes.

Some observers said United still has a ways to go.

"They need to cut $4 billion out of their cost structure," said Frank Werner, associate professor of finance at Fordham University.

Raising fares isn't a viable alternative because of the competition, Werner said...

http://www.chicagotribune.com/business/chi-0403190215mar19,1,2295749.story?coll=chi-business-hed

[Wino]

Yeah 54 I agree.
But wait a minute, what about Air France? Olympic? even BA 10 years or so ago (maybe a little longer now) but you get the point,

In these cases instead of Chapter 11 you get some pretty odious government GRANTS, granted for no reason other than the airlines were screwed up.

So they got (or in olympic's case are getting) a complete "do over" which is far more lenient than the United states bankruptcy process.

So it aint quite that unlevel from one side of the atlantic to the other after all. Well whaddya know about that...



Cheers
Wino

[Shuttleworth]

joseph mirabella- I had to laugh....
Boeing can't "compete" with airbus - because it has no tangible offerings. It's products simply can't compete with those of airbus. It's future (for civil airliners) is bleak.

[Airbubba]

>>I'm not familiar with left seat pay on the 744 at UA<<

Looks like it's $202.85 per credit hour (pretty much hard time in the current agreement) for a 12 year captain. Unlike with some expat schemes, the 12 years includes any FE or FO longevity under the U.S. system. Also, there is $7.00 an hour international pay and $10.50 an hour night pay if applicable.

Although these pay rates are low compared to Delta 777 ($319.61 an hour plus night and international pay starting May 1, 2004) and pre-911 UAL, they are still much higher than long haul competitors like Singapore or Cathay. In fact, the 12 year UAL 744 FO's still make more than many overseas 744 captains at $138.54 an hour (plus some night and international pay). ORD-NRT used to operate with three FO's, one was there to "plot" in Russian airspace.

Pay on the 777 is the same as the 744 pay under the current concessionary UAL agreement.

[Joe Mirabella]

Shuttleworth:

you laughing at boeing or my name?

saying that boeing can't compete with airbus is like saying we can't compete with you.

[Taikonaut]

How is United planning to survive?

It has just started this new lowcost outfit "Ted".

The start-up cost. The new paint job. Competing against itself. Paying UA pilot the same wage to fly "Ted" yet earn less revenue.

I don't get it. :rolleyes:

[aviator]

Airbubba,


<<<ORD-NRT used to operate with three FO's, one was there to "plot" in Russian airspace.>>>


In the interest of accuracy, US carriers are required to have one additional crewmember for flights over 8 hours and 2 additional crewmembers for flights over 12 hours. The Star Alliance flight schedule shows the Chicago to Tokyo flight time as being 13:15 hours.

Does your carrier work under different rules? Or is it a non US carrier?

[Ignition Override]

Mr. Mirabella: These discussions seem easier if we separate ourselves from any connections to our native land or company, in a very detached manner-this can help a lot during an airline merger (!). Your name appears to have a pleasant connotation in Italian.

YYC F/A: You raised some very valid points. Airline subsidies (they would be nice!) instead of lgovt. loans, are much more direct than manufacturer subsidies. Very good rebuttal.

Would it be somewhat ironic if several US airlines operated numerous A-330s or 340s to Europe and/or Asia?:8

[Airbubba]

>>In the interest of accuracy, US carriers are required to have one additional crewmember for flights over 8 hours and 2 additional crewmembers for flights over 12 hours. The Star Alliance flight schedule shows the Chicago to Tokyo flight time as being 13:15 hours.<<

Well, they did have two captains and three first officers as I recall when I rode the jumpseat on that leg a while back when things were booming. Also, in the glory days (i.e. three years ago) United put an extra pilot onboard for Atlantic flights less than eight hours (seems like it was letter 01-14 if you want to check the hymnal). This "Atlantic Augmentation" was lost in the bankruptcy givebacks.

[Lite]

The choice for giving United a new brand is a really good idea.

Aircraft will only be painted when they go in for their D checks, when the aircraft have to be stripped of their paint anyway. The new livery is a lot simpler, and apparently costs a lot less to paint and to maintain. Also, Continental when they were in the middle of their turnaround programme in the 1990's "From Worst to First" decided to give a new livery to all of their planes to show that it was a new corporate philosophy at the airline, and they were here to stay.

I'm not too sure what to think about Ted. They haven't invested as heaving in Ted as Delta has at Song. There isn't all the technology and IFE that Delta's had to put in over at Song to compete with JetBlue. Instead, Ted is giving passengers a simplified United product, much like Shuttle by United, but unline S by U, the airline has the costs in line with the fares.

So, I'm not sure if the new livery & Ted are such bad ideas ...

[aviator]

Airbubba:

<<Well, they did have two captains and three first officers as I recall when I rode the jumpseat on that leg a while back when things were booming. Also, in the glory days (i.e. three years ago) United put an extra pilot onboard for Atlantic flights less than eight hours (seems like it was letter 01-14 if you want to check the hymnal). This "Atlantic Augmentation" was lost in the bankruptcy givebacks.>>

That suggests to me that there was a linecheck of the crew taking place from a Standards Captain. Even if an OE was done, UA uses one Captain and 3 type rated First Officers. That saves them from having 2 Captains unlike carriers like Northwest.

Lite:

You are absolutely right about Ted in that the startup cost was minimal. It consisted of a slightly different paint sceme, replacing the F/C seats with coach seats giving Ted more seats to sell,(with additional 4-6 inches of legroom), some inflight programming, simplified fares and tons of nearly free publicity. Will it work? Time will tell, but from day one the load factors have been in the 80-90% range. It seems to appeal to many travellers to tourist destinations.

Jim Morehead:

Your posting captures very well what is going on at the new United. Thank you very much. This article in a Chicago newspaper gives additional insight of how things are on the line.


Pilot's faith in United unshaken


http://www.chicagotribune.com/business/chi-0403210292mar21,1,7870901.story?coll=chi-business-hed

[Airbubba]

Looks like there is some sort of investigation going on with the ATSB bailout loan applications. Anybody know what's up?

__________________________________________________

UAL, US Air, America West Get Subpoenas on Loan Board Matters

March 21 (Bloomberg) -- UAL Corp.'s United Airlines, US Airways Group Inc. and America West Holdings Corp. said today they received subpoenas from the U.S. Treasury Department seeking their correspondence with airline loan board members and staff.

The subpoena seeks receipts for meals, airline tickets, gifts, loans or discounts for board staff members, the New York Times reported Saturday. The subpoena didn't say why investigators want the information and five U.S. carriers confirmed receiving them, the newspaper said, without naming them.

Anne Womack Kolton, a Treasury Department and loan board spokeswoman in Washington, declined to comment today.

Congress set up the Air Transportation Stabilization Board after the 2001 terrorist attacks to decide which airlines would receive as much as $10 billion in guarantees to help the carriers recover from the effects of the attacks.

Daniel Montgomery, a former executive director of the board, is the only member mentioned by name in the subpoena, the paper said. Montgomery, who left the board in August, declined to comment to the Times. Contacted at his New Jersey home by Bloomberg News, Montgomery said he was unaware of the subpoena before the Times story and declined to comment further.

Chicago-based United Airlines, which has a $1.6 billion loan guarantee application pending before the Air Transportation Stabilization Board, received a subpoena from the Treasury Department's inspector general, said Stephan Roth, a company spokesman. ``We're cooperating,'' he said.

http://quote.bloomberg.com/apps/news?pid=10000103&sid=aBk6a18TecHQ&refer=us

[Airbubba]

Guarantee or not, United plans to exit bankruptcy

By Melissa Allison
Tribune staff reporter

Published June 12, 2004

United Airlines said Friday that it will exit bankruptcy this year, even if it does not receive a crucial $1.6 billion federal loan guarantee.

The airline believes it qualifies for and urgently needs the government's backing. But the carrier's restructuring plan is working, making it sufficiently strong to emerge from Chapter 11 protection even if the government says no, Chief Executive Glenn Tilton said.

"I think that the balance of the year would provide us ... with sufficient time to complete the restructuring--with or without" the loan guarantee, Tilton said in an interview with The Associated Press.

A decision from the Air Transportation Stabilization Board on United's request could come any day.

United has declined to discuss how it would emerge from bankruptcy without the guarantee. But industry sources say the process would be painful and would complicate efforts to return the nation's second-largest airline to financial health.

United parent UAL Corp. almost certainly would need an equity investor for a capital infusion in order to attract loans without government backing. One name that comes up frequently is David Bonderman's Texas Pacific Group.

Texas Pacific is known for its 1990s turnarounds of Continental and America West Airlines. The group lost out to Retirement Systems of Alabama in a bid to bring US Airways out of bankruptcy last year.

But airline investors, hardened to the realities of high fuel prices, low fares and increasing competition from low-cost carriers, are likely to demand some big changes from United if the carrier does not receive a government guarantee.

United needs about $2 billion to emerge from bankruptcy, much of it to repay its debtor-in-possession loans, which have helped support operations since the airline filed for Chapter 11 protection in December 2002. Citigroup Inc. and J.P. Morgan Chase & Co. agreed to put up the money if the government backs $1.6 billion of it.

Anyone willing to invest that kind of money in United without a government guarantee not only would take a large chunk of ownership in the Elk Grove Township-based airline but likely would take another bite out of already-reduced employee wages and benefits, sources said.

United has cut its workforce by 38 percent since mid-2001 and slashed wages and benefits by roughly $2.5 billion a year in an effort to become a leaner competitor. Workers this week agreed to a cut of more than $300 million in retiree benefits through 2010.

More demands from management would not sit well with workers.

"Their employees will pout, on-time performance will suffer, but ultimately management will prevail," said one industry source. "They'll come out a whole and pretty vibrant competitor."

Such sentiment is expressed by those who believe United should be denied the loan because it needs to cut more costs, particularly in its weighty pension funds, and to pare some routes to become more competitive.

Urgency to fix now

Another industry source said it would be worse to let United limp along with a loan and possibly tumble back into bankruptcy.

"That's a much worse scenario than getting it fixed now, which may require some near-term pain," he said.

Besides operating in one of the most difficult environments in industry history, the airline is attempting to exit bankruptcy at the same time a number of its peers are in serious financial trouble.

US Airways, which exited bankruptcy last year with equity funds from Retirement Systems of Alabama, is struggling to avoid a second bankruptcy filing.

Delta Air Lines, considered the strongest U.S. carrier before the Sept. 11 terrorist attacks, has warned that it could be headed for Chapter 11 protection if it does not receive major concessions from workers.

And Air Canada has had trouble rounding up exit financing from its bankruptcy, losing a potential investor after labor unions refused to meet his demands for pension cuts.

Those woes would be fresh in the minds of any equity investor with its eye on United.

Rejection means `on to Plan B'

Sam Buttrick, an analyst at UBS Investment Research, took a glib view of United's situation in a report on Thursday.

After saying that United's chances of getting a federal loan guarantee are far diminished, Buttrick writes that the implications of such a rejection are "not much."

"Indeed, it would simply be on to Plan B, which would likely entail some combination of a longer stay in the protective custody of bankruptcy, redoubled cost-reduction efforts to achieve a cost structure that would attract market capital, and perhaps some modest level of network downsizing, none of which sounds all too terrible to us," Buttrick wrote.

http://www.chicagotribune.com/news/local/chi-0406120092jun12,1,6115272.story?coll=chi-news-hed

[Heilhaavir]

Vive la France et son camembert............by the way Dannon announced a surprise airplane by the end of 2007..... la pochette surprise de la mere Dennis..... Attention Boeing Boeing!!

A+
Pat

[ironbutt57]

Attention Boeing...and all the ridiculous other nationalistic postings aside.....wanna be that way? One big Germany 60 yrs ago would have been better for us Americans in lots of ways....a stupid comment to match the other ones posted here....so back to the gist of things...should UAL be bailed out?..probably dont deserve it for sure but think of the people affected...so whats the answer?