CHICAGO, 10 December 2002 — United Airlines filed for bankruptcy yesterday in the biggest ever aviation industry failure, but pledged to continue flying as it cuts costs to keep them in line with falling revenues.
UAL Corp., parent company of the world’s second largest carrier, said filing under Chapter 11 of US bankruptcy law “will facilitate UAL’s restructuring which is designed to restore the company to long-term financial health while operating in the normal course of business.”
United faced deadlines to repay almost one billion dollars to various creditors this week, with no means of doing it after the federal government refused to provide it an almost two billion dollar loan guarantee last week.
With mounting losses from the slump in US air travel accelerated by last year’s Sept. 11 terror attacks, and hamstrung by the highest labor costs in the business, the company was forced to seek protection from creditors.
As part of its bankruptcy filing, the company has organized a line of debtor-in-possession or asset-backed credit worth $1.5 billion.
The company will be able to draw down 300 million of that immediately to meet operating costs, but it will be a very different United that emerges from Chapter 11, UAL chief executive Glenn Tilton acknowledged.
“We are going to look at the entire business ... really soup to nuts ... that includes every component of the margin from labor costs, to non-labor costs to revenue realizations, and to profit improvement initiatives.
“All of those things need to be considered to dramatically improve our margin ... which obviously is insufficient,” he told reporters at Chicago O’Hare International Airport.
That will probably mean more wage cuts for the 83,000 employees who have long had a rocky relationship with United management, and had already agreed to 5.2 billion of wage cuts over the coming six years.
In a first — and possibly symbolic step — United announced yesterday it was going ahead with a proposed wage cut for senior executives.
The average 11 percent cut will take effect Dec. 16 along with pay cuts for salaried employees and management ranging from three to almost 11 percent.
“We have said for some time now that reducing labor costs are a critical component of our recovery effort,” said Tilton in a statement.
The carrier will also begin discussions with its six unions this week concerning wage cuts for pilots, flight attendants, mechanics and various service personnel.
But it also means a far-reaching restructuring of the airline to address the challenge from low-cost competitors like Southwest, who have made huge inroads into the bottom end of the market.
“We need to broaden our customer base and we certainly need to lower our cost structure. We have to realize that the whole business has changed,” Tilton said. United’s unions were predictably disappointed by the decision, but rallied behind management, pledging their efforts to help salvage what they could from the reorganization. The filing “is one of the most difficult and disappointing developments in our proud history,” said Capt. Paul Whiteford, spokesman for United’s 9,000 pilots. (AFP)
