United Exits Bankruptcy
CHICAGO _ United Airlines left bankruptcy protection Wednesday, ending an often painful three-year restructuring that thinned the work force, cut wages and shrank the airline’s fleet.
United, the nation’s second-largest carrier, made dramatic changes to its operation to bring its costs in line with its competitors. Now, parent UAL Corp. must compete in an era where high fuel prices have made it difficult for any airline to make a profit and discount carriers, such as Southwest Airlines, are even more of a threat to mainline carriers such as United.
For more than a thousand days, United labored through a bankruptcy, where creditors scrutinized every spending decision and each strategic move. Throughout the process, the airline also enjoyed the power to push better terms from its creditors.
Bankruptcy protection ended about noon Wednesday when documents were filed with the U.S. Bankruptcy Court in Chicago confirming the carrier’s reorganization plan.
United entered bankruptcy on Dec. 9, 2002. In the months and years that followed, some experts predicted the company _ or at least its management team _ would never survive the process. Chief Executive Glenn Tilton said Wednesday he never doubted the bankruptcy’s outcome, but he called it only the first step in an ongoing process.
“It feels as if we have created an opportunity for ourselves,” Tilton said. “That’s all it really is. We’ve reset our competitiveness, and now we have the opportunity to compete with everybody on a level playing field and take advantage of the distinct attributes we have.”
During the past three years, United has cut about 24,000 jobs and reduced labor costs by $4 billion. It also eliminated 20 percent of its aircraft. In all, more than $7 billion in costs have been cut.
Significant challenges remain. United has not recorded an annual net profit since 2000, when the airline made $50 million. Its financial projects anticipate a profit this year, but that assumes $50-a-barrel oil. Although oil prices fell Wednesday, they remained at more than $66 a barrel. Unlike some of its competitors, United has no significant fuel hedges in place to offset the impact of high prices.
Competition also continues to be a concern. Southwest Airlines recently began flying to Denver, one of United’s largest hubs. Two other mainline carriers _ Delta Air Lines and Northwest Airlines _ entered bankruptcy late last year, and are trying to bring their costs down to levels lower than United’s.
While a leaner company, United now has the ability to reinvest in itself in ways it has not been able to afford, Tilton said. Plans call for $400 million in capital spending this year, much of it to upgrade aircraft interiors. United has also agreed to spend $4.3 million to buy the lease to a concourse at Dulles International Airport from FLYi Inc., the bankrupt parent of Independence Air.
United workers marked the milestone Wednesday by recounting the wages and benefits they have given up in recent years, saying they expect management to deliver on its promises. They won’t allow executives to squander the chance to improve the airline’s performance, labor leaders said.
“For the pilots, United’s exit from bankruptcy is a beginning, not an end,” said Capt. Mark Bathurst, of the Air Line Pilots Association.
“Management must now execute its business plan, to accept nothing less than excellence in every aspect of our airline, and institutionalize a culture of continuous improvement, mutual respect and accountability from the CEO’s office to the airplane cockpit,” he said. “With bankruptcy behind us, there are no more excuses, no room for error and no second chances.”
The last several years took their toll on workers who saw their paychecks shrink, said Capt. Herb Hunter. “There have been times when it’s been tough to get up in the morning, tough for guys to come to work,” he said. “But they have done that.”
Randy Canale, president of the International Association of Machinists and Aerospace Workers, issued a statement calling on management to build on the sacrifices workers have made.
“The true heroes of this shameful bankruptcy ordeal are the IAM members and other frontline employees who work every day at reduced rates while delivering a first-rate product,” Canale said.
Tilton said he understands the lingering concerns and anger some employees feel, but he credited them with not allowing the bankruptcy to become a distraction that detracted from their jobs. The airline has continued to score high in most industry measures of airline performance. And during reorganization several new products were introduced, most notably Ted, a low-cost airline that serves mostly vacation destinations.
The first true indication of how Wall Street views post-bankruptcy United will come Thursday when the company’s stock begins trading on the Nasdaq Stock Exchange.
Standard & Poor’s raised its corporate credit ratings on UAL Corp. and United Airlines Inc. to “B” from “D” on Wednesday.
United faces “difficult industry conditions, characterized by high and volatile fuel prices and fierce competition from low-cost carriers in the U.S. domestic market,” analyst Philip Baggaley said in a report issued with the ratings upgrade.
But weaknesses are mitigated by the carrier’s “extensive and well-positioned route system, which provides good revenue potential, especially on international routes, and by reductions in labor costs and financial obligations achieved in bankruptcy,” he said.
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