Judge Lets United Leave Chapter 11
Saturday, January 21, 2006
A U.S. bankruptcy judge in Chicago approved United Airlines' reorganization plan yesterday, the final hurdle in the airline's path to reemerge after three years under Chapter 11 protection.
After the ruling, executives from United's parent, UAL Corp., said the airline could complete its reorganization as early as Feb. 1.
"We are concluding our restructuring work and look forward to competing in the marketplace and focusing on our customers without distraction," Glenn F. Tilton, United's chairman and chief executive, said in a memo to employees. "The confirmation of our plan is clear validation of the work we have done to make United a sustainable enterprise with a strong financial and operational foundation."
United has already given some indication of its long-term plans. It has shifted part of its focus to expanding international flights and strengthening its low-cost U.S. subsidiary, Ted. The airline also plans to spend about $400 million on new airport check-in machines, updating its computer systems and refurbishing its aircraft interiors.
Since filing for bankruptcy protection in December 2002, the nation's second-largest airline has cut about $7 billion in annual costs. That was achieved partly by reducing its fleet by 55 planes, cutting 26,000 jobs and reducing the pay and benefits of its remaining employees -- including the elimination of its pension plans, the largest pension default in U.S. history.
With more than $25 billion in assets, United became the country's ninth-largest Chapter 11 filing in history, according to BankruptcyData.com.
In approving the plan, Judge Eugene R. Wedoff praised the airline's long and difficult reorganization.
"Certainly not everyone can be completely happy about the end that we have come to today. The holders of UAL stock as of today will see that stock canceled. Employees of the company have seen jobs lost [and] wage benefits substantially reduced. On the other hand, I think there is reason to feel good about the confirmation of this plan," he said, according to a transcript of the court's proceedings. Wedoff added that as a result of United's bankruptcy, the airline now "has the potential to be a profitable investment, a reliable business partner and a stable employer."
As it prepares to compete outside bankruptcy protection, United finds a drastically different marketplace. Fuel prices have nearly doubled. Two of its biggest competitors, Delta Air Lines and Northwest Airlines, are also in bankruptcy court. Two other competitors, US Airways and America West Airlines, have merged.
Meanwhile, one of United's biggest competitors at its hub at Dulles International Airport, Independence Air, which began flying in the summer of 2004, has gone out of business, which allows United greater price flexibility on many Midwest and East Coast cities where the two airlines competed.
But airline analysts say the carrier must continue to focus on finding ways to control costs. Excluding fuel, the airline projects its costs to be 7.6 cents per seat per mile. But to remain competitive, analyst Raymond E. Neidl of Calyon Securities Inc. said, United must reduce its cost to about 7 cents per seat per mile.
With "Northwest and others bringing their costs structure down, 7 cents is a target that should be reached for," Neidl said.