United Airlines threatens bankruptcy filing this fall if cost-cutting fails

Thursday, August 15th 2002, 12:00 am
By: News On 6

CHICAGO (AP) _ United Airlines says it's in danger of heading to an undesirable new destination: bankruptcy court.

In an urgent bid to avoid Chapter 11, the financially ailing carrier is imposing a one-month deadline to slash costs through agreements with its employee unions and business partners. If unsuccessful, the nation's No. 2 carrier said it would declare bankruptcy.

``The changes we need to make are urgent, significant and immediate,'' CEO Jack Creighton said in announcing the intensified recovery effort.

United's announcement came just three days after US Airways filed for bankruptcy and a day after American Airlines disclosed drastic cutbacks, including 7,000 layoffs.

Two smaller carriers, Midway Airlines, Vanguard Airlines, also have filed for bankruptcy since the Sept. 11 terrorist attacks that decimated the airline industry.

A falloff in demand, industry-leading wage contracts, a sluggish economy and tough discount-fare competition all have contributed to a financial slide that began in 2000 for United, which has 1,900 daily flights, 80,000 employees and an extensive worldwide route network.

The airline lost a record $2.1 billion last year and another $851 million in the first six months of 2002. Despite $2.7 billion in cash reserves, it continues to lose more than $1 million a day and faces an $875 million debt payment in the fourth quarter.

Creighton said the airline in the coming days will present new cost-saving proposals to employee representatives, leaseholders and vendors.

``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.''

The announcement stepped up pressure on unions that so far have balked at pay cuts United says are necessary to stem massive losses.

It also signals a final attempt to improve its chances of receiving a much-needed $1.8 billion government loan guarantee. United said it's been told its application will be rejected by the Air Transportation Stabilization Board without making significant further cuts.

United's pilots' union tentatively agreed to a 10 percent pay reduction earlier this summer, but other groups have rejected proposed pay cuts.

United's biggest union, the International Association of Machinists, said late Wednesday it is ready to listen to new proposals. ``We are concerned, however, that the company has yet to respond to cost-cutting suggestions from front-line employees at UAL,'' said Randy Canale and Scotty Ford, presidents of IAM Districts 141 and 141-M, in a joint statement.

Flight attendants, who also have declined pay-cut proposals, said they will consider a new United plan. But spokesman Jeff Zack of the Association of Flight Attendants said any new proposal must take into account that their pay is pegged to industry-average wages, unlike the industry-leading pay of other employee groups.

Airline analyst Ray Neidl said United could restructure without filing for bankruptcy.

``There's enough room, enough time, enough resources for them to get the airline in shape outside a Chapter 11 filing,'' said Neidl, of Blaylock & Partners. ``But they're letting everybody know this can't go on forever. If you're not going to get (employee) concessions, you might as well take it into Chapter 11.''