United faces `agonizing' change as it enters bankruptcy

<br>CHICAGO (AP) _ Even as United Airlines took out newspaper ads proclaiming its first day of bankruptcy as ``Chapter 1'' of a bright future, the company warned of wrenching changes to come. Analysts

Tuesday, December 10th 2002, 12:00 am

By: News On 6

CHICAGO (AP) _ Even as United Airlines took out newspaper ads proclaiming its first day of bankruptcy as ``Chapter 1'' of a bright future, the company warned of wrenching changes to come. Analysts also raised the specter of liquidation.

``We're going to have to be leaner, we're going to have to be more focused,'' CEO Glenn Tilton said after leaving a bankruptcy hearing Monday.

United attorney James Sprayregen said the airline will try to reduce labor costs and work with unions to make the pain as minimal as possible. But he said the airline faces ``profound and agonizing change.''

United's filing for Chapter 11 bankruptcy, the sixth largest by any company and the biggest in aviation history, came less than a week after the federal government rejected a plea for financial assistance.

The bleak numbers in United's petition, filed before dawn Monday in U.S. Bankruptcy Court in Chicago, underscored what the company portrayed as an urgent need to slash costs. The nation's No. 2 airline said it has been losing $20 million to $22 million a day in recent weeks, much worse than previously reported.

United did not specify the cuts to be made in a bankruptcy that Tilton expects to last about 18 months, but they are certain to include reducing the number of flights, dropping unprofitable routes and slashing wages.

In its filing in bankruptcy court, the company said the only way to turn the airline around will be to reduce labor and other costs dramatically, and Tilton said he would meet with leaders of United's employee unions Tuesday.

Relations between the company and its unions have not always been easy.

Two years ago, pilots and mechanics caused thousands of flight delays and cancellations during stalled labor negotiations. And just two weeks ago, as the company was trying to avoid bankruptcy, mechanics rejected a plan to contribute $700 million in wage concessions.

Aaron J. Gellman, a professor at Northwestern University's Transportation Center, said the unions and management must learn to work together. ``Because if they don't, they run the risk of going into Chapter 7, liquidation. If that happens, everybody loses,'' he said.

Joseph Schwieterman, an aviation industry expert and economics professor at DePaul University in Chicago, agreed. ``The parallels with Eastern Airlines are almost scary,'' he said, referring to the struggle between labor and management more than a decade ago that helped drive that carrier out of business. ``All United employees should read the history of Eastern Airlines.''

United, on a pace to lose an industry-record $2.5 billion this year, had pinned its last hopes of avoiding bankruptcy on getting federal backing for $1.8 billion of a $2 billion loan that banks wouldn't otherwise provide. But the Air Transportation Stabilization Board, created last year to help the airline industry recover after Sept. 11, rejected United's request Wednesday.

The linchpin to United's proposal was $5.2 billion in labor cutbacks by 2008, but the three-member federal panel said the airline's business plan was financially unsound and a loan guarantee would have risked U.S. taxpayers picking up the tab.

Chief Judge Eugene R. Wedoff approved an order giving United access in 11 days to $800 million of a $1.5 billion loan package. Wedoff will rule on whether United gets the balance after creditors and other interested parties have a chance to object. The judge scheduled a hearing on the issue for Dec. 30.

Despite analysts' expectations that United's stock would become completely worthless, investors appeared to be speculating on it. Shares of parent company UAL, which reached $100 a share in 1997, closed unchanged at 93 cents Monday on the New York Stock Exchange, with more than 57 million shares traded.

The airline is running full-page ads in newspapers in major U.S. markets on Tuesday to persuade passengers not to give up on United. ``There's one thing we all feel very strongly about at United,'' the ads, with the headline ``Chapter 1'' say. ``Our future.''