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.