CHICAGO (Reuters) - Bankrupt United Airlines forecast a first-quarter operating loss of $877 million and said for the first time publicly that liquidation is a "distinct possibility."
In the last week alone, UAL Corp's UAL.N United's domestic bookings are down and international bookings have dropped 40 percent due to the impending Iraq conflict.
In papers filed with the bankruptcy court on Monday, United outlined a dire set of circumstances in months ahead as the Iraq war appears imminent.
The projections contrasted with recent announcements from the world's second-largest airline that daily cash flow was positive in January and it was beating the first set of financial requirements set by bankruptcy lenders.
United said in the court document it might cease operations altogether without labor cost reductions from major unions.
Elk Grove Village, Illinois-based United said initiatives so far to cut costs will not return it to profitability. UAL lost a record $3.2 billion in 2002, about a quarter of the $11 billion in net losses by all top eight U.S. carriers combined.
"With war-related jitters increasing and fewer people purchasing tickets, United's near-term revenue forecast through June 2003 has deteriorated by $298 million from projections made just weeks ago," the company said. "At the same time, the cost of fuel, United's second-largest operating expense, has gone in the opposite direction."
"In the wake of the deadlines that have recently been set for Iraq to disarm, United's bookings have begun to drop substantially," it said. "Domestic bookings have recently declined ... the drop in international bookings has been more dramatic."
SOARING FUEL COSTS
Unhedged on its jet fuel purchases for the entire year, United now says it expects the price for fuel in 2003 will be 19 percent higher than it projected in December, when it filed for bankruptcy.
As a result of the higher costs and lower revenues, United will violate its debtor-in-possession financing covenants starting in May 2003, even with temporary wage cuts that are saving $70 million monthly.
"Liquidation is a distinct possibility if United does not receive its proposed labor cost reductions," the airline said. "The consequences of liquidation for all United stakeholders would be catastrophic. In particular, liquidation would mean that all of United's employees would lose their jobs."
In the wake of the Sept. 11, 2001, attacks, United cut about 20 percent of its workforce and 20 percent of its flight schedule, reduced other expenses and tried to restructure its financial obligations.
But those efforts could not offset weak revenue, and after the U.S. government denied an application for $1.8 billion in backing of private-sector loans, the airline filed the largest aviation bankruptcy in history on Dec. 9.
REJECTING CONTRACTS
After winning temporary wage cuts from its unions, United is now seeking to throw out its collective bargaining agreements altogether. Weeks of talks yielded no deal on $2.56 billion annually of longer-term concessions the airline wants.
United said it is not alone in its troubles, noting Continental Airlines CAL.N also recently forecast rough times ahead in transAtlantic travel.
"Other carriers, such as Delta DAL.N , Japan Airlines 9205.T and others, have also felt the conflict's effect on bookings," it said. "The difference between United and its competitors is that, because the company is in Chapter 11, United must disclose its Iraq contingency plans."
United said it has already met with a representative of its DIP lenders to ask for a relaxation of the loan covenants. Four institutions put up $1.5 billion in financing for United -- J.P. Morgan Chase & Co Inc. JPM.N , Citigroup Inc. C.N , CIT Group Inc. CIT.N and Bank One Corp. ONE.N .
But the DIP lenders said they needed hard data from United on the effects of the war, which they assumed would not be available until after it started. More meetings are scheduled for this week.
UAL shares, which traded at more than $100 each in the late 1990s, fell 1 percent on the New York Stock Exchange to 85 cents. Shares of its biggest competitors, AMR Corp. AMR.N and Delta, were higher.