UAL Warns of Possible Bankruptcy Filing
Some of the union folks seem to think it's a bluff to force concessions but it's looking more real by the hour...
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From the Wall Street Journal:
UAL Warns It May File
For Bankruptcy Protection
A WALL STREET JOURNAL ONLINE NEWS ROUNDUP
United Airlines parent UAL Corp. warned it may file for bankruptcy protection this fall because it has insufficient access to capital markets to repay $875 million in debt due in the fourth quarter. The airline also plans a new round of cost cuts.
"Unless we lower our costs dramatically, filing for bankruptcy protection will be the only way we can ensure the company's future and the continued operation of our airline," said Jack Creighton, chairman and chief executive.
UAL said it is changing its business plan and will update its loan application with the Air Transportation Stabilization Board to include significantly broader, deeper and longer-term costs savings.
As part of its intensified cost-saving efforts, UAL plans to present new proposals to employee representatives and other shareholders in the coming days.
UAL said it has given itself 30 days to conclude discussions with stakeholders, making the necessary changes "urgent, significant and immediate."
"Revenue isn't coming back the way the industry expected. Demand isn't returning, fares remain low, and the industry is grappling with how to respond," Mr. Creighton said in a statement.
United's announcement comes after US Airway Group Inc., the seventh-largest U.S. airline, became the first major carrier to file for bankruptcy protection since the Sept. 11 terrorist attacks.
Like US Airways, United was losing money before Sept. 11. Beginning last fall, United, the second-largest U.S. carrier, reduced its schedule, furloughed employees, retired fleets and cut capital spending substantially. The airline also has eliminated base commissions.
In addition, United has sought a $1.8 billion federal loan guarantee, though the request has encountered some opposition from regulators. The guarantees are considered crucial for the airline to raise new capital before some of its debt payments are due.
Some of United's competitors are lobbying the government against granting the guarantee on the ground that it would fail to address the real problem: United's industry-leading labor costs. They contend that what United needs isn't more cash but cost-cutting of the sort that is hard to achieve outside bankruptcy court. A government bailout would allow United to keep paying exorbitant labor rates, rivals say, and consequently pressure would remain on them to match those rates. United workers own 55% of the company.
Updated August 14, 2002 4:56 p.m. EDT
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From the Chicago Tribune:
United issues Chap. 11 warning
By Stephen Rynkiewicz
Tribune staff reporter
Published August 14, 2002, 4:08 PM CDT
United Airlines today said it must take "urgent, significant and immediate" steps to restructure the company, possibly including a Chapter 11 bankruptcy filing.
Jack Creighton, chairman and chief executive, said United is facing a cash crisis, with $875 million in debt payments due in the fourth quarter.
He said executives "are preparing for the potential of a Chapter 11 bankruptcy filing this fall, due to our fourth quarter debt payments. Unless we lower our costs dramatically, filing for bankruptcy protection will be the only way we can ensure the company's future and the continued operation of our airline."
Creighton said United will talk with creditors and employees over the next 30 days. The Elk Grove Township-based carrier has been hoping to secure wage concessions from its unions in its previous efforts to pull out of the industry's post-Sept. 11 slump.
The wage concessions have been a contingency in $1.8 billion in federal loan guarantees United is seeking. The airline now says it will revise its application to call for "significantly broader, deeper and longer-term cost savings."
"The world has changed," Creighton said. "Revenue isn't coming back the way the industry expected. Demand isn't returning, fares remain low, and the industry is grappling with how to respond."