United Airlines' three major unions and 10 of its largest creditors were appointed today to the creditors committee that will play a critical role in the airline's reorganization.
Nearly 300 lawyers, creditors and financial advisers to United's parent, UAL Corp., crowded into a Chicago hotel today, most jostling to become part of the committee that can obtain key information during the company's bankruptcy reorganization and help steer management decisions.
U.S. Trustee Ira Bodenstein appointed only 13 members. They included the major unions -- the Air Line Pilots Association, the International Association of Machinists and the Association of Flight Attendants -- and included aircraft manufacturer Airbus North America, marketing partner Deutsche Lufthansa, bondholder Bank of New York and computer reservation systems operator Galileo International. United's lawyer, James H.M. Sprayregen of Kirkland & Ellis, said the airline plans to begin talks with the committee as soon as possible.
Appointing labor representatives to creditors committees is not unusual, Sprayregen said. Trans World Airlines, which Sprayregen represented during its last bankruptcy reorganization, had them and US Airways does now.
United's chief financial officer, Frederic F. "Jake" Brace, gave the creditors a brief outline of United's financial history and current problems. Brace said the year-end loss would be slightly more than the $2.1 billion it lost last year.
"We are undertaking a transformation of our business," Brace said. United plans to reduce the size of its fleet and is talking with aircraft manufacturers to renegotiate plane leases, he said. The airline has 2,500 new proposals being reviewed by various aircraft lease owners, he said.
"We have to shrink a significant number of aircraft and a variety of types," Brace said.
Brace also said the airline is discussing additional pay cuts with its unions. He said United's 80,000 employees should expect to give up more than the $5.2 billion over 51/2 years that they have already agreed to accept.
Since United filed for bankruptcy protection on Monday, Brace said, fewer passengers than the airline's executives expected have canceled their bookings.
The scene at the Sheraton hotel here seemed like an Ivy-League law school reunion. Lawyers rekindled relationships with colleagues familiar from other airline bankruptcy cases.
Some of them got a head start positioning for a slot on the committee. "We started communicating with [Bodenstein] Monday. We have a vested interest in seeing that United Airlines reorganizes," said Alan K. Mills, representing the city of Indianapolis, which did not get a seat. One of United's largest maintenance bases is in Indianapolis.
"This is reminiscent of the Eastern [Airlines] bankruptcy," said Harold L. Kaplan, who represents several investors whose bonds have face value of about $1 billion. "We're here because we want to be at the front of the learning curve."
After the creditors committee was formed, law firms and financial advisers remained to present their platform in an effort to be chosen as the committee's representatives, a process that lawyers call "the beauty pageant." The lead law firm for a creditors committee can earn millions of dollars a month in fees, attorneys here said.
Of United's 130,000 creditors, only 60 of the largest were notified of the meeting, Bodenstein said, including the Retirement Systems of Alabama, the pension fund that plans to take over US Airways under that carrier's reorganization proposal. United owes the fund $340 million.
Still, a source in Bodenstein's office said there were more creditors represented at today's meeting than at the first meeting in Kmart Corp.'s bankruptcy proceeding.
Bodenstein said size of claims were among the criteria used to determine the members from among the many categories of creditors. The airline's next hearing is scheduled for Dec. 30 , when the bankruptcy court will decide if it can fully tap $1.5 billion in interim financing. Earlier in the week, United was allowed to use $800 million.
Sprayregen said United had "a lot of work" ahead but that he expected the reorganization to be complete by June 2004.