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Joined: Mon Jan 01, 2001 3:28 pm

Chapter 11 For Ua?

Fri Feb 01, 2002 11:55 pm

New York Times 02/01/02
author: Laurence Zuckerman

Will United Airlines seek bankruptcy court protection?

Several industry experts and two senior executives at rival airlines said they were beginning to conclude that United, widely considered the most troubled of the domestic airlines, would have no choice but to file for Chapter 11 bankruptcy protection later this year if it were to have any hope of turning itself around.

A bankruptcy filing is still considered unlikely by many experts, and even if it happened United would almost certainly keep flying. Many carriers, most recently Continental Airlines (news/quote ), have come back as a result of a court-supervised reorganization. Indeed, some analysts think Chapter 11 might be the best thing for United.

"Of all the airlines, United would probably benefit the most from bankruptcy," said Raymond E. Neidl, an airline analyst at ABN Amro (news/quote).

But bankruptcy is also extremely risky. "No airline is too big to fail," Mr. Neidl added. "Look what happened at Braniff, Eastern, Pan Am and T.W.A."

The UAL Corporation (news/quote ), United's parent, is scheduled to report its fourth-quarter results today and they are expected to be ugly, even in an industry that has suffered staggering losses since Sept. 11.

The consensus of analysts on Wall Street is that UAL will lose about $800 million for the quarter. Its annual loss would amount to just under $2 billion, which accounts for about one-third of what the entire industry is expected to lose in 2001, according to UBS Warburg.

"It's almost impossible to imagine a way out for those guys without some sort of restructuring that includes bankruptcy," one industry consultant, who insisted on not being identified, said yesterday.

The company declined to comment yesterday about a possible bankruptcy filing. John W. Creighton Jr., the former paper company executive who was recruited from the board in October to run UAL after the former chief executive resigned under pressure, said at the time that he had no intention of presiding over a bankruptcy.

A bankruptcy would probably wipe out shareholders, who at United include a large block of employees. The union representing United's pilots, which together with the International Association of Machinists and salaried employees received 55 percent of UAL stock in 1994 in exchange for wage and benefit concessions, strongly opposes the idea.

"It is simply not an option for us," said Steve Derebey, a spokesman for the United chapter of the Air Line Pilots Association.

Since coming out of retirement to take the helm, Mr. Creighton has asked employees for what he described as "several billion dollars" in concessions. But he has insisted that the unions take the lead in designing the cuts. So far there has not been much movement.

"We have not discussed anything in the nature of a concession at this point," Captain Derebey said.

Mr. Creighton has avoided giving interviews since being named chief executive, and United declined a request yesterday. But he has met recently with union leaders.

Mr. Creighton prides himself on his handling of labor relations during his years as chief executive of Weyerhaeuser (news/quote ). But the union issues there pale beside the deep-seated labor strife at United. Mr. Creighton, 69, has been credited with being open and frank but he has a methodical style that some insiders have criticized as plodding.

This week he announced an executive reorganization that even he admitted might draw skepticism. "I know to many of you this is just a reshuffling of the same people who were reshuffled last time," he said in an internal message to employees.

The slow pace of change has irritated many employees. "The same people who got us into the situation we are in today are still calling the shots," said Bobbie Pilkington, a spokeswoman for the Association of Flight Attendants.

Mr. Creighton may have managed to avoid a strike by United's mechanics. But the proposed settlement came after an emergency board appointed by the White House ignored management's pleas of poverty and awarded the mechanics a 37 percent pay increase. United reluctantly endorsed the proposal, which will cost an estimated $1.6 billion over four years. It is still subject to ratification by the union in a vote later this month.

Those who believe bankruptcy is unavoidable argue that United will not return to profitability simply by cutting its labor costs. The airline's troubles date back to disruptions in the summer of 2000 that alienated thousands of customers. They have been worsened by the downturn in high-profit business travel early last year followed by Sept. 11, in which two United jets were crashed.

UAL had a relatively strong balance sheet on Sept. 11 but it has had to add to its debt and is still losing millions in cash daily. The first quarter is historically the weakest for the airline industry. January is also a month when airlines must make tax payments to the government and payments on their fleet. That could quickly reduce United's cushion of cash, according to the two executives at rival carriers.

Mr. Neidl said a bankruptcy filing would also allow the company to end employee ownership, giving management a freer hand in running the company. But he concluded that for that very reason the unions would probably step in before allowing the company to file for bankruptcy. "They will probably give management enough to avoid bankruptcy but not enough to make it an attractive investment," he said.

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Joined: Tue Jan 29, 2002 1:43 am

RE: Chapter 11 For Ua?

Sat Feb 02, 2002 12:05 am

The key for UA is for pilots to give concessions. They got huge raises in exchange for their support for the US-UA merger. I heard that they might be willing to do so. No other group at the company is paid so generously.

RE: Chapter 11 For Ua?

Sat Feb 02, 2002 4:14 am

Yeah I read that too.

This would be a tremendous boon for American as they effectively would become America's number one airline. But I think its far off, US Airways and Midway are the two I'm much more concerned for.

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Joined: Wed Nov 17, 1999 8:28 pm

RE: Chapter 11 For Ua?

Sat Feb 02, 2002 4:23 am

Twaneedsnohelp, Chapter 11 doesn't mean you're bankrupt and not flying. Chapter 11 is a very good way to sack people, demand a pay cut and other restructuring measures. Why else do you think that some aviation analysts recommend the Chapter 11 scenario? Not because they want to see UAL bankrupt.

Thus in the end AA may not benifit so much as you think.

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Joined: Mon Oct 01, 2001 2:28 am

RE: Chapter 11 For Ua?

Sat Feb 02, 2002 5:52 am

Rumor on the line is March 15 company may file or start the threatening process. Paycuts aren't the only answer. This operation is in trouble as management has been writing checks for a long time without anyone looking at the balance. One of the more unproductive pilot groups. They were loosing LOTS of money before the 9-11 event. If in fact they do go CH-11 could be damaging to the industry at this time like what Continental's use of CH-11 did to a healthier industry. Not good for anyone if it goes.
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Joined: Fri Jun 15, 2001 7:27 pm

RE: Chapter 11 For Ua?

Sat Feb 02, 2002 6:05 am

Has anyone addressed the raises that UAL gave to their employees.

The mechanics received a deserving raise after being put off for 6-8 years from what I read.

With all these raises being given, one group of employees or perhaps more are being overpaid and thus the other groups will be left with minimal pay increases.

How can UAL management let the mechanics go for so long without a raise and give it's pilots and f/a's hefty raises.

In the end, the consumers will pay for the mismanagement of UAL that does not offer quality service but offers frequencies which is the reason the flying public uses UAL.

Perhaps chapter 11 will bring cost structure, budgets, and employee attitudes to reality. UAL is not a airline that is known for being ontime, being courteous and professionalism. Sure there are those stories of empolyees "going the extra mile" but overall UAL has a average rating. I have experienced UAL service and since then I have avoided using them ever since.

A smaller UAL might be the best thing.

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Joined: Tue Jan 29, 2002 1:43 am

RE: Chapter 11 For Ua?

Sat Feb 02, 2002 6:08 am

Actually UA competitors would benefit if the company filed for Chapter 11. Although the airline would still be around, it could be forced to sell some assets and reduce operations. Competitors would naturally pick up where UA has reduced service. Once it has ceded market share, it would be hard to get it back. Further, UA's most valuable long term assets are its landing rights at LHR and slots at NRT. Selling either set of those could hurt the company permanently. I really, really hope they can avoid bankruptcy.

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