UNITED TO AXE UP TO 9000 JOBS

Some bad news from the ailing United Airlines.

United lays out tough measures

The struggling No. 2 airline details plan to secure financing; includes 9,000 job cuts.
November 17, 2002: 7:07 PM EST
By Kathy Fieweger, Reuters

CHICAGO, Nov 17 (Reuters) – United Airlines, racing to avoid bankruptcy, on Sunday released more details of a business plan aimed at getting a $1.8 billion federal loan guarantee, including shrinking itself by about one-quarter and making an operating profit in 2004.

The No. 2 U.S. airline said it expects about 9,000 more job cuts from its current staff of about 83,000, but gave no details about a timetable or where they would originate. Before the Sept. 11, 2001, attacks threw the airline industry into havoc, United had about 100,000 workers.

United’s parent, UAL Corp (UAL: Research, Estimates)., has posted billions of dollars in losses last year and in 2002 as the industry remained mired in a historic downturn. It will be cutting its flight schedule, also known as capacity, by an additional 6 percent in 2003, leaving the airline about 23 percent smaller than it was before the attacks on New York and Washington.

In details submitted in a financial recovery plan to the Air Transportation Stabilization Board, UAL also said it expected to retire an additional 49 aircraft. The company is based in Elk Grove Village, Illinois.

The airline has asked the ATSB to guarantee $1.8 billion of a $2.0 billion loan. United spokesman Rich Nelson said Sunday it released new details to the public at the same time as it got the word out to employees.

The key to an expected turnaround is $2.5 billion in annual profit improvements, including $1.1 billion in annual labor cost savings and another $1.4 billion a year in non-labor cost savings and revenue enhancements, United said.

The airline is engaged in an all-out public relations campaign to win approval of the loan backing, but sources familiar with the matter say it might either backfire or the government may delay a decision, in effect putting the airline into bankruptcy anyway.

Last week, United confirmed it was talking to major banks about getting $2 billion in “debtor-in-possession” financing to keep operating in the event of bankruptcy.

Still awaiting word
The federal agency, created after the Sept. 11 attacks decimated the aviation industry, is charged with doling out as much as $10 billion in backing of private-sector loans to airlines that could not access capital at reasonable interest rates.

Among the biggest airlines, America West Holdings Corp. and US Airways Group Inc. have secured the guarantees. United is the biggest carrier to apply but also has had some of the highest labor costs in the industry. It has outlined labor savings far less in proportion to its size than did Arlington, Virginia-based US Air.

As a result, many Wall Street analysts have said United’s plan will not be not enough to persuade the government to back the loan.

“The odds are still against an approval,” said Blaylock & Partners airline analyst Ray Neidl. “Are the concessions all ‘hard dollars’ is the question that the ATSB and analysts are asking.”

United has cash on hand, but is burning through it so quickly that a debt payment of $375 million due on Dec. 2, which cannot be renegotiated, would push its reserves too low.

The airline and government officials have been meeting regularly, and recently the agency issued a letter saying more details were needed.

Rather than reacting to specific feedback from the ATSB, “We thought we’d get some deeper level of detail out there,” Nelson said. “I’m not aware of any feedback (from the agency). The dialogue continues. We’re anticipating there will be some meetings.”

UAL said it will also defer all scheduled aircraft deliveries through 2005. The company expects to receive about one aircraft per month between 2006 and 2009.

The airline plans to begin repaying any loans guaranteed by the ATSB in 2005 and to completely pay them off by 2007.

Among big labor groups, the leaders of both the pilots’ and flight attendants’ unions recently agreed to take pay cuts and are having their memberships vote on the tentative deals. But machinists, represented by the International Association of Machinists, still have not struck a deal.

On Friday, UAL stock closed at $2.95, down 17 cents or 5.5 percent on the New York Stock Exchange.

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