- CHICAGO (Reuters) - United
Airlines filed for bankruptcy on Monday, the largest ever in the global
airline industry, after high costs and low airfares left the world's No.
2 carrier with too much debt and not enough cash.
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- UAL Corp.'s United UAL.N , with one of the broadest networks
in the world, will continue to fly worldwide as it attempts to reorganize
under protection from the U.S. Bankruptcy Court in the Northern District
of Illinois.
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- The entire U.S. airline industry has been reeling from
a slump in business travel and the Sept. 11 attacks, posting losses last
year of about $10 billion and on track for at least $7 billion in losses
this year.
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- United stressed in a statement it will be "business
as usual" for customers.
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- But for employees, suppliers and others, changes are
in store, said Chief Executive Glenn Tilton.
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- Tilton told Reuters in an interview he would consider
selling some of the airline's assets in bankruptcy if they don't fit and
someone else is willing to pay a "superior" price. The airline
will shrink in the future, but he could not yet predict how much.
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- United, with about 83,000 employees, had two of its Boeing
BA.N jets commandeered in the devastating attacks on New York and Washington
on Sept. 11, 2001.
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- Since then it has posted nearly $4 billion in losses,
with no end in sight to the red ink.
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- Judge Eugene Wedoff, chief of the bankruptcy court in
Chicago, will preside over the huge bankruptcy case, which the airline
said it hopes to complete within 18 months. A court hearing was scheduled
at 11 a.m. CST on Monday.
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- Shares of UAL tumbled as much as 15 percent from Friday's
close on the New York Stock Exchange, but pared losses to trade unchanged
at 93 cents around midday on Monday. The exchange is still reviewing whether
to delist the stock.
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- SECOND MAJOR U.S. CARRIER IN COURT
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- Another big U.S. airline, Arlington, Virginia-based US
Airways Group UAWGQ.OB , filed for bankruptcy in August, and several smaller
carriers have shut down altogether.
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- For United, which has a history of labor troubles and
some of the highest wage costs in the industry, the downturn has also proved
too difficult to navigate. The U.S. government last week rejected the airline's
bid for federal loan guarantees, which had been its last hope for securing
fresh capital.
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- The court filing has been widely expected and analysts
generally predict a successful although lengthy court process.
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- "The odds clearly favor a reorganization, but that
is by no means a foregone conclusion," said Gary Chase, airline analyst
at Lehman Brothers. "United and its employees and suppliers have to
quickly address the company's heavy cash burn in order to ensure a successful
reorganization."
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- Tilton said to get out of bankruptcy, the airline may
reapply to the government for loan guarantees. "It's a very good possibility,"
he said. "I think that's what they intimated in their response. I
think the new business plan will be far more appealing to them upon exit
than what we were able to put together as a stabilization."
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- UNIONS REACT
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- In a statement, the International Association of Machinists,
representing about 37,500 workers, said it foresees sacrifices for workers
but the union is energized about its role in the bankruptcy.
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- "Though bankruptcy may be new for our United Airlines
members, the IAM has resources and experience in this area. We do not intend
to be passive participants in United's bankruptcy. Actually, we are primed
to play an active role."
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- The Air Line Pilots Association also said any successful
restructuring must involve the pilots' union.
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- "United Airlines' Chapter 11 bankruptcy filing is
one of the most difficult and disappointing developments in our proud history
and one that we have worked extremely hard over the past 12 months to avoid,"
said Captain Paul Whiteford, the head of the airline's pilots branch.
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- Leaders of United's unions had agreed to a total of $5.2
billion in wage cuts over 5-1/2 years, but rank-and-file mechanics rejected
their $700 million portion the night before Thanksgiving, dealing the bailout
plan a blow.
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- Tilton told Reuters he still believes the $9 billion
outlined by former CEO Jack Creighton was a reasonable level.
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- United is 55 percent employee-owned, and the pilots and
machinists each have a seat on the company's board after a 1994 employee
stock ownership plan was put in place. A simple majority vote from the
board was required to approve a bankruptcy filing. Bankruptcy usually leaves
a company's common stock worthless.
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- "The natural tendency in situations like this is
to waste energy placing the blame," Chase said. "Unfortunately,
that's the most unproductive thing that United and its employees and creditors
can do at this time."
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- Included in the bankruptcy filing are UAL Corp., United
Airlines Inc. and 26 other direct and indirect subsidiaries.
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- FINANCING IN PLACE
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- United confirmed it arranged with a group of banks for
$1.5 billion in financing to see it through bankruptcy. At the final hour,
GE Capital GE.N pulled out of the group of lenders and was replaced by
CIT Group CIT.N .
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- The other three lenders are JP Morgan Chase JPM.N , Citibank
C.N and Bank One ONE.N .
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- Banks and others are willing to lend United the money
in bankruptcy because these credit lines get paid back first.
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