United is gearing up for bankruptcy
CHICAGO (AP) – United Airlines’ struggling parent company announced an urgent cost-cutting effort Wednesday and said it is preparing to file for bankruptcy this fall unless it succeeds in lowering expenses. UAL Corp. cited the approach of $875 million in debt payments due in the fourth quarter and said it is setting a 30-day limit to try to reach agreements on cost-cutting. Its pilots’ union agreed to a 10 percent pay reduction earlier this summer, but other groups have rejected proposed pay cuts.
“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,” Jack Creighton, United’s chairman and CEO, said in a statement.
Three airlines have already filed for bankruptcy protection this year, citing the sluggish economy, competition from low-cost carriers and a downturn in travel following Sept. 11. United, the nation’s No. 2 carrier behind American Airlines, would be the biggest to seek protection from creditors.
United is awaiting a decision on its application for a $1.8 billion government-backed loan that it says is necessary for it to compete in a difficult market. But Creighton told employees this week that the Air Transportation Stabilization Board appears poised to reject it without more evidence of cost-cutting.
The airline in its announcement said it is changing its business plan to build a stronger, more cost-competitive airline, but it gave no details pending the outcome of talks with stakeholders, including employees who own 55 percent of the company.
“The changes we need to make are urgent, significant and immediate,” Creighton said. “Simultaneously, we are preparing for the potential of a Chapter 11 bankruptcy filing this fall, due to our fourth-quarter debt payments.”
Creighton said the Elk Grove Village, Ill.-based airline would in the coming days present new cost-saving proposals to employee representatives and other stakeholders.
“Whatever course we take, we have one message for customers: our recovery efforts are about the long-term health of United Airlines,” he said. “We will do whatever it takes to continue to meet the needs of our customers for many years to come.” United’s announcement comes a day after rival American announced a restructuring and days after US Airways filed for Chapter 11 bankruptcy.
United officials said they had already taken some of the steps made by American, including retiring 99 planes last year. But they are under increasing pressure to act amid increasing speculation about the possibility of bankruptcy.
UAL’s stock fell 29 cents Wednesday to close at a 22-year low of $2.45 a share. The shares fell another 10 percent in after-hours trading. The stock has lost 53 percent of its value this week.
The company lost a record $2.1 billion last year and another $851 million in the first six months of 2002. It has said substantial losses are expected for the rest of this year as it fights a soft economy and shrunken demand.
“The world has changed,” Creighton said. “Revenue isn’t coming back the way the industry expected. Demand isn’t returning, fares remain low and the industry is grappling with how to respond.
“At United, we have determined that we must make improvements in our business plan to ensure we get the cost savings we need to compete in an industry that has fundamentally changed.”