United Airlines to Outline Restructuring Plan

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STEVE INSKEEP, reporting:

Today, United Airlines tries to move past one of the last obstacles to getting out of bankruptcy. Its bankruptcy filing more than three years ago was the largest in airline history. Now, United wants a court to approve its reorganization, as NPR's Cheryl Corley reports.

CHERYL CORLEY, reporting:

United Airlines announced its bankruptcy in December of 2002. Since then, the country's second largest airline has improved its on-time record, set up a lower cost leisure airline, called Ted, and in the aftermath of 9/11 and high fuel prices, slashes its costs by seven billion dollars a year. United's chief operating officer, Pete McDonald, says it's been an arduous but necessary process that will allow United to compete with low cost carriers.

Mr. PETE MCDONALD (CEO, United Airlines): The real story is the way we've been able to change our company, improve our service, improve the products simultaneously with the restructuring that's been occurring.

CORLEY: Airline analyst, Robert Gordon, puts it another way. He is a professor of Economics at Northwestern University.

Mr. ROBERT GORDON (Professor, Northwestern University): United in bankruptcy has actually pioneered a way for the legacy or old time carriers to try to escape the noose around their neck.

CORLEY: The noose, says Gordon, of high pensions and salaries, soaring healthcare costs, and expensive aircraft leasing rates. United transferred its traditional pensions to a government agency, cut thousands of jobs, and negotiated deep salary cuts with its remaining 58,000 employees. It did so in what's been not only the largest airline bankruptcy, but the longest. United's been able to stay in bankruptcy for more than three years because key lenders, airplane manufacturers and employees all had good reasons for making big concessions. Again, Robert Gordon.

Mr. GORDON: Also, after years of bad luck and bad management, United was extremely lucky in the selection of the bankruptcy judge who has been incredibly tolerant to the wishes of the current United management.

CORLEY: Other airlines argue the bankruptcy process allows crippled airlines to keep flying, which creates excess capacity. That makes it impossible for them to raise prices at a time when the revenue is sorely needed. Standard and Poor's airline analyst, Phil Bagley, says the argument has merit, but it's not as true as it used to be. He says United reduced its seat capacity, as have other bankrupt airlines.

Mr. PHIL BAGLEY (Analyst, Standard and Poor): For example, Delta Airlines and Northwest, who are both bankrupt, have announced that they're pulling some planes out domestic service and turning them back to lenders or leasing companies; and Independence Air, of course, just recently shut down entirely.

CORLEY: Add up all the reductions, says Bagley, and it's the equivalent of a large airline shutting down. He expects modest fair increases. United meantime says there's no guarantee that it will remain viable outside of bankruptcy, but it believes the company's reorganization plan will help make that possible. Creditors approved the plan recently, but unions object to one section which grants United's top managers and board members millions in new stock. Companies in bankruptcy typically offer such plans to hang onto talent. But Jeffrey Hisey(ph), with the Association of Flight Attendants, says the unions agreed to deep cuts to keep United running, so the airline needs to share the wealth.

Mr. JEFFREY HISEY (Association of Flight Attendants): If it has this money available, why would it be putting this money into the pockets of its executives, when its frontline employees have been out there working so hard and have sacrificed so much to ensure the success and viability of the business?

CORLEY: The bankruptcy judge will consider the Union's arguments, as the hearing for United's reorganization plan gets underway today. Cheryl Corley, NPR News, Chicago.

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