Judge Eugene Wedoff last month again gave United Airlines parent UAL Corp. more time to file a bankruptcy reorganization plan before outside parties can offer alternatives.
The United States Bankruptcy Court for the Northern District of Illinois has granted such requests on numerous occasions during UAL's 26-month Chapter 11 case and the company's current management team has until Apr. 30 to either file a new business plan or request even more time. The airline also must deal with an unhappy mechanics union, which last month rejected a tentative collective bargaining agreement and threatened to strike as other major unions ratified their new deals.
United's bankrupt partner, US Airways, similarly was given an extension on the deadline to file a plan of reorganization. It also completed new, lower-cost labor agreements and no longer stands at the precipice of liquidation. The carrier's CEO Bruce Lakefield recently said US Airways would complete bankruptcy reorganization by the end of June.
United's current target for finishing its Chapter 11 restructuring is sometime in the autumn. Though questions remain about the carrier's future ownership, leadership, labor relations and financial structure, other elements are beginning to come into focus.
For example, United is in the midst of reorganizing its sales team, redesigning corporate programs and attacking distribution costs
(see story). It recently named a new vice president of sales for North America
(see story, page 3) and is in the process of modifying domestic mainline services while boosting its international presence
(see story, page 4).On the labor front, recent developments have been mixed for United. On one hand, agreements ratified by four major unions—including those representing pilots and flight attendants—were approved last week by the bankruptcy court. On the other, these labor groups indicated their patience has run out and members are unlikely to grant any additional concessions.
Of more immediate concern is the position of the Aircraft Mechanics Fraternal Association. Its members rejected United's latest deal. Although the presiding judge imposed temporary pay cuts through May 31, the union said that it would strike if the bankruptcy court decides to unilaterally force a long-term agreement upon it.
Helane Becker, analyst with The Benchmark Co., said the AMFA rejection was not expected. "United is in a difficult position because without labor contracts in place, its management cannot continue to try to restructure the airline," she said.
UAL CEO Glenn Tilton last week told employees that negotiations continue with AMFA and the International Association of Machinists, but the company will be prepared if need be to go to trial and force concessions.
Tilton recently said that the company had 90 days to resolve the issue of employee pensions. UAL also must obtain exit financing for its emergence from Chapter 11 and reverse losses. United has lost nearly $4.5 billion since it filed for bankruptcy in December 2002 and nearly $10 billion since the beginning of the industry downturn in the second half of 2000.
Meanwhile, US Airways by last month had secured cheaper collective bargaining agreements with all major unions, providing "a strong tail wind" for its effort to emerge from court protection, said chairman David Bronner. Company management also "identified the necessary sources of liquidity" to satisfy terms of a reworked deal with GE Capital Aviation Services, US Airways' largest financial backer
(BTN, Dec. 6, 2004)."US Airways has met every milestone in its efforts to restructure," Lakefield said in a letter to frequent flyers.
If the company meets the June timeframe, it would represent US Airways' second completed bankruptcy reorganization in less than three years, just six months after being left for dead by many industry observers. Currently, analysts are a bit more optimistic about the seventh-largest U.S. carrier, at least for now.
"The liquidation chorus is now shifting its tune from winter 2005 to winter 2006," said J.P. Morgan analyst Jamie Baker, "but in 2006 we expect cheaper oil, improved revenue trends and below-average labor costs at US Airways."
"With the labor agreements in place, we believe that the booking away that has been occurring at the airline will likely abate, giving the company an opportunity to once again fly out of Chapter 11," added The Benchmark's Becker.
"US Airways will likely last the year out," concluded UBS analyst Robert Ashcroft. "The lesson is, as always, that airlines are a lot harder to eliminate than we might think."