United Airlines, unions negotiate on cost cuts

Dave Carpenter

Thursday, Oct. 24, 2002 | 9:45 a.m.

CHICAGO -- After shoring up its appeal for federal aid, United Airlines renewed efforts today to secure the key element of its emergency financial overhaul: $5.8 billion in targeted labor concessions.

The nation's No. 2 carrier, hoping to steer clear of the bankruptcy filing it has warned may be necessary, continued individual negotiations with its unions on their share of the cutbacks the airline is seeking to spread over 5 1/2 years.

Spokesmen for both the airline and the unions declined to divulge details of the talks or characterize their progress other than to confirm that multiple sets of talks were continuing today.

Despite United's filing of an updated business plan containing drastically increased cost-saving measures beyond those outlined in June, industry observers remained skeptical whether they will be enough to persuade the Air Transportation Stabilization Board to provide the requested and much-needed $1.8 billion loan guarantee.

Analyst James Higgins of Credit Suisse First Boston said the board is likely to take 30 to 45 days to review the plan, putting a decision date "dangerously close" to a $575 million debt payment deadline of Dec. 2 faced by cash-crunched United.

"Time is not on UAL's side," he said in a note to investors in United parent UAL Corp. "Even if, as we believe is possible, UAL's $300 million debt repayment due on Nov. 17 is delayed, the carrier could find itself with less than $700 million in cash by early December -- a level that would almost definitely lead to a Chapter 11 filing."

UAL shares rose 16 cents to $2.50 in morning trading on the New York Stock Exchange, climbing for a second straight session in response to the updated filing.

Harsher cuts were necessary for United after the federal board signaled that the airline's earlier proposal was insufficient.

The board has declined to comment publicly on the process and a spokeswoman did not immediately return a phone call about United's application.

The revised application, reflecting the bleak outlook for the troubled airline industry, calls for a 12 percent reduction in capacity in 2003 beyond what it envisioned in its original application in June. That would reduce United's daily flight schedule, currently around 1,900, to 1,700 or fewer next year.

The airline also added other cost-saving measures to those already disclosed: further reduction in 2003-05 capital spending of $1.2 billion, and plans to stop flying in January to four international cities -- Caracas, Venezuela; Santiago, Chile; Dusseldorf, Germany; and Milan, Italy -- as well as flying smaller aircraft on seven overseas routes.

The international cost-cutting will result in a combined 229 layoffs in those four cities and save an estimated $120 million annually, on top of $100 million in savings from U.S.-based reductions announced Monday, which included 1,250 job cuts.

United reported an $889 million third-quarter loss last week and has been losing money from its operations at a growing rate of $7 million a day. It had $1.66 billion in unrestricted cash at the end of September.