United Airlines, burdened by debt and by tense relationships with its employees, who own more than half the company, said yesterday that it might file for bankruptcy protection by mid-November if it did not receive concessions from labor unions, suppliers and others within a month.þþThe unions appeared reluctant to give cuts and promised to oppose any move toward bankruptcy. Two of the unions have seats on the 12-member board of UAL, the parent company of United, and more than half the board has to vote in favor of seeking bankruptcy protection for the company to make such a move.þþThe announcement from United, the nation's second-largest airline, was the latest in a series of upheavals that have racked the industry during one of its worst weeks. US Airways, the country's sixth-largest airline, filed for bankruptcy protection on Sunday, and American Airlines, the world's largest airline, said on Tuesday that it was laying off 7,000 workers, reducing capacity and retiring dozens of jets.þþWhat United does in its labor negotiations weighs heavily on the entire industry. United has given its pilots and machinists generous contracts that other airline labor groups have demanded their employers match or surpass, propping up the high cost structure that is helping create the big industry losses, analysts say.þþThough the employees own 55 percent of UAL, they have little corporate governance power beyond the two board seats.þþUntil yesterday, United said it had no plans to file for bankruptcy protection, despite analysts' gloomy outlook on the company. But executives are now clearly betting that the threat of bankruptcy will bring the unions back to the table.þþUnited is seeking a $1.8 billion federal guarantee of private loans that will bolster its dwindling cash reserves, and it said yesterday that the government would give its backing only if it received deeper concessions from all stakeholders.þþUnited has $2.7 billion in cash reserves that it is using up at a rate of nearly $1 million a day, and it will have to pay off $875 million in debt this fall. The first $300 million is due on Nov. 17.þþÿThe world has changed,ÿ John W. Creighton Jr., United's chief executive, said yesterday in a written statement. ÿUnless we lower our costs dramatically, filing for bankruptcy protection will be the only way we can ensure the company's future and the continued operation of our airline.ÿþþAnalysts say that United has some of the most complex problems in the industry and that bankruptcy protection may be the only real way to make the company profitable again. United lost $341 million in the second quarter, more than any of its rivals, and $2.1 billion last year, an industry record.þþExperts say one of the airline's most immediate problems is that Mr. Creighton, 69, is a lame duck now, since he has said he intends to resign. No overhaul can take place until a successor is found, they say.þþIn the meantime, management and the unions cannot seem to agree on exactly what ails the carrier. Management says United is dragged down by the most expensive labor contracts in the business.þþThe unions maintain that management has made several horrendous business moves, especially an ill-fated attempt to buy US Airways that was blocked by the Justice Department last year. Now, they say, United is making another by threatening a bankruptcy filing, a move that would probably wipe out the value of UAL stock.þþThe shares, which closed yesterday at $2.45, down 29 cents, have already tumbled 92 percent since Sept. 10.þþÿWe think the company should be concentrating more on a business plan that works than filing for bankruptcy,ÿ said Robert Roach Jr., general vice president of the International Association of Machinists and Aerospace Workers, United's biggest union. ÿAnd you can't attribute this to labor costs. The machinists' union has already stepped up to the plate by deferring retroactive pay.ÿþþMr. Roach said that the machinists agreed earlier this year to let the company defer payment of $500 million owed to them. The first $70 million is now due on Dec. 15.þþUnited also needs to find a successor for Mr. Creighton before his union will negotiate seriously with management, he said. ÿThere's a power vacuum at United, and no one under Creighton can do anything,ÿ said Darryl Jenkins, director of the Aviation Institute at George Washington University. ÿAnd it's not just labor they need to work on. They need to restructure their airline to have more productivity.þþÿChapter 11 may be the best possible option available for United Airlines,ÿ he added.þþSome airline executives said United must tackle its labor contracts immediately because of the costly precedent they set for the rest of the industry.þþSuch negotiations are complicated by the fact that the machinists and the pilots have one seat each on the board. Critics say this raises corporate governance problems because the union board members might be working more for the interests of their individual constituencies than for all the shareholders.þþÿThe inmates are running the asylum, and they have access to the pharmacy,ÿ said Gordon M. Bethune, the chief executive of Continental Airlines.þþThere are cases where employee ownership has not led to conflicts of interest, and executives at such companies have been able to lay off workers or wring concessions from unions. At those companies, management and employees have worked together to give the workers the responsibility they should shoulder as owners, said Corey Rosen, executive director of the National Center for Employee Ownership, based in Oakland, Calif. But at United, he said, management and labor both fell back into their antagonistic — and more politically comfortable — roles after the ownership plan was created in the mid-90's.þþÿAll of our research on the experience of employee ownership indicates, surprisingly, that having employees on boards is neither as powerful as critics had feared, nor as effective as proponents had hoped,ÿ Mr. Rosen said. ÿIt rarely changes the behavior of a company. Much more critical is the day-to-day relationship between management and labor, to the degree that you have an ownership culture created.ÿþþThe unions at United part company with one another — as well as with management — on many issues. The flight attendants' union never took part in the employee ownership program, so they do not have the same vested interest the other workers do in ensuring the health of the stock. The pilots' union has tentatively agreed to give management an immediate 10 percent pay cut, but that is conditional on other unions' agreeing to similar concessions. None have so far, and the pilots are blaming those groups for hampering United's recovery.þþÿIn the case of the other labor unions, we feel they've been ignoring reality,ÿ said Steve Derebey, a spokesman for the pilots' union. ÿWe need the government loan guarantee to stabilize the company. To get it, we'll need the help and participation of the other employees on this property.ÿþþBut Mr. Derebey admitted that the pilots' wage cut agreement was only a short-term fix for the airline, because it actually provides for annual raises of 7.9 percent from 2003 to 2005.þþUnited applied for a $1.8 billion federal loan guarantee to get a $2 billion private loan. The Air Transportation Stabilization Board, set up by Congress after Sept. 11 to administer the $10 billion loan guarantee program, demands stringent business plans from its applicants. It has told United it wants the airline to get ÿbroader, deeper and longer concessions from all stakeholders,ÿ said Jake Brace, United's chief financial officer.þþThe stabilization board said yesterday that it had rejected a request from National Airlines for a $50.5 million loan guarantee, and one for $60 million from Spirit Airlines. Last month, the board gave conditional approval to a $900 million loan guarantee for US Airways, and said on Sunday that it would give the airline the backing if it successfully restructures in bankruptcy.þþMr. Brace said that United executives would meet with unions over the next several days to discuss further concessions.þþMeanwhile, a five-member committee of board members was close to settling on a successor to Mr. Creighton, said John K. Van de Kamp, a board member. United's problems have led several industry executives to reject the job.þþ
Source: NY Times
