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UNITED AIRLINES Officials: Without cuts, liquidation is possible

Friday, March 21, 2003

Chance of a United Airlines liquidation is 50 percent, an analyst says.
CHICAGO (AP) -- United Airlines warned in a court filing that it could be forced out of business this year if unable to secure the deep labor cuts it's proposing in bankruptcy -- its bleakest assessment yet of its prospects.
The statement was contained in a court filing late Monday in which it requested that its labor contracts be scrapped unless new agreements can be worked out by the first week of May.
"Liquidation is a distinct possibility if United does not achieve its proposed labor cost reductions," said the company, which is seeking $2.56 billion in annual labor reductions.
While liquidation has always been a risk if United's restructuring fails, it was one of the company's first direct acknowledgments that liquidation is a possibility as United struggles to recover at a time of severe crisis in the airline industry.
Aiming for contracts
Both the remark and the dire outlook could strengthen United's negotiating case as it works to get long-term contracts in place. But analysts said it confirms the industry's worsening situation along with what has long been known -- that the world's No. 2 airline risks a Chapter 7 liquidation if it can't soon stem its continuing losses in bankruptcy.
"We've all known it was a possibility," said Nicolas Owens, aerospace and defense analyst for Chicago-based Morningstar. "This is just them saying it's a possibility. They need to reduce revenue and costs. They're just spelling it out."
United said it projects an operating loss of $877 million for the first three months of 2003, scarcely improved from the $927 million operating deficit in the fourth quarter despite aggressive cost cuts and interim wage reductions.
United said in the 91-page memorandum outlining its court motion that it has experienced a dramatic recent drop in international bookings, which it said have dropped precipitously throughout the industry.
A challenging picture
An analyst for Lehman Brothers raised the likelihood of a United liquidation to 50 percent from 30 percent based on the document, saying it paints a challenging financial picture for the airline and calls its prior disclosures into serious question.
"Eroding industry revenues, soaring fuel prices and revenue disclosures made by United in a court document last night give us pause about the company's prospects of successfully reorganizing," analyst Gary Chase said Tuesday said in a research note.
In one potentially positive sign for labor negotiations, the flight attendants' union issued a statement downplaying the chances of liquidation and pledging to help ensure its survival.
"Liquidation is not an option for United Airlines," the union said.
Besides additional wage cuts that could be put into place by April 15, United said it is stepping up its efforts to lobby the government for financial assistance.