United looking at early bankruptcy exit

0 Comments | Deseret News (Salt Lake City), May 22, 2003 | by Dave Carpenter AP business writer

CHICAGO -- Nearly half a year into its restructuring, United Airlines says it's making better progress than expected and might move its targeted exit from bankruptcy up from mid-2004 to as early as this fall.

But chief financial officer Jake Brace said in comments published Wednesday that the carrier still needs lagging revenue to pick up or it could miss some of its lenders' financial targets this summer.

United has been publicly criticized by some airline industry observers for not yet revealing specific new business plans as part of its restructuring, even though it has until Oct. 6 to file a reorganization plan in federal bankruptcy court.

Both Brace and UAL Corp. CEO Glenn Tilton, in a recorded message to employees last weekend, maintain that the parent of the carrier, based in Elk Grove Village, Ill., is ahead of schedule despite a $1.3 billion first-quarter loss.

Brace told The Wall Street Journal that UAL expects to meet its lender-required financial targets for April and May. He also said the company is realizing more progress than expected in reducing its costs, particularly after putting new labor contracts into effect May 1 that will save $2.56 billion a year for six years.

"We're going to be significantly ahead of the $4 billion in (annual) savings" foreseen by 2005, he said.

Besides the labor savings, he said, United expects to gain significantly more than $500 million a year from current efforts to restructure aircraft leases and mortgages. Additional savings will come from outsourcing more aircraft and engine maintenance to vendors -- allowable under the revised contracts -- and reducing municipal- bond obligations.

"We see no impediment to an early exit" from bankruptcy, potentially in the fourth quarter of 2003 or the first quarter of 2004, Brace said. "But we want to come out a completely fixed company, not a partially fixed company."

United spokesman Chris Brathwaite confirmed Brace's remarks but declined to elaborate on the company's status or plans.

"We're solely focused on a successful emergence from bankruptcy and continuing to provide the best possible service to our customers," he said.

Still to be determined are United's exact plans for a low-fares carrier it has said it will launch by year's end in order to compete with the discount airlines that compete with it on three-quarters of its routes.

Also, United has indicated that it expects at some point to revise its failed application for $1.8 billion in federal loan guarantees. The Air Transportation Stabilization Board rejected its bid last December, calling its business plan "fundamentally flawed," and cash- starved United filed for bankruptcy five days later.

Aiding United in its effort to recover from three years of heavy losses is a much-improved operating performance that has seen it rise from the bottom of the on-time rankings for U.S. airlines to near the top.

"Our airline continues to perform better than we have in years," said executive vice president John Tague.

Airline expert Josh Marks said United is progressing well in bankruptcy. But Marks, associate director of George Washington University's Aviation Institute, said it would be unrealistic to think seriously about coming out of bankruptcy until it finds an equity sponsor.

"With an incremental pickup in revenue, they certainly could come out of bankruptcy ahead of schedule," he said. "But if demand were to drop, they'd be back in the Chapter 11 bucket. The last thing they'd want to do would be to come out and then refile."