United Airlines is about to fly out of the protective nest of Chapter 11 bankruptcy reorganization a far leaner company than when it went in. But whether the USA's No. 2 airline has done enough to thrive in a brutal environment remains to be seen.
United's executives say the company is poised to soar after the approval Friday by U.S. Bankruptcy Judge Eugene Wedoff of the company's plan to operate a reorganized airline outside bankruptcy protection. The decision means that within days, United, after more than three years, will end the longest, largest and most expensive bankruptcy case in aviation history.
United "is ready to compete successfully with the strongest carriers," CEO Glenn Tilton said after Friday's court ruling.
"This company has changed at its very root," says United marketing chief John Tague.
In its new life, the Chicago-based carrier wants to offer something for everyone: It will cater more than ever to elite business fliers paying the highest fares. It's also reaching out as never before to thrifty fliers who just want cheap seats. And in its quest to be more international, it will fly regularly to more foreign cities and to fewer U.S. cities.
In the bankruptcy process, United has shed $8 billion in debt, 20,000 employees and 100 jetliners. Since filing in December 2002, United has cut its operating costs despite the highest jet fuel prices in history; its revenues have risen.
But others outside United aren't so sure it has sufficiently reinvented itself to become consistently profitable and avert another financial crisis if fuel prices remain high, travel demand slackens or the economy sours. They worry United's operation is still too complex and too vulnerable to the vagaries of oil prices and the price-cutting of low-cost rivals, which already have diminished the big carrier's market share in the five U.S. cities where it operates hub airports.
"I doubt they will make a profit in the near term," says airline analyst Philip Baggaley of Standard & Poor's, the credit-rating firm. In the next economic downturn, "United is likely at risk."
The past five years of United's corporate life could make a sweeping Hollywood epic. In early 2001, American Airlines surprised the industry by buying TWA and vaulting over United to become the world's No. 1 carrier. Months later came the Sept. 11 terrorist attacks. United lost two jets and everyone aboard.
Air travel plummeted. Overwhelmed by high costs and heavy losses, United sought Chapter 11 protection 15 months later. It twice applied unsuccessfully for a multibillion-dollar federal loan guarantee. Then came the wars in Afghanistan and Iraq and the Asian SARS epidemic, all of which hammered United's international business. Recently, airlines have been pummeled by record-high oil prices that approached $70 a barrel after Hurricane Katrina and topped $68 last week. Delta and Northwest airlines recently followed United into Chapter 11.
'Very concerned early on'
Even United's supporters wondered during bankruptcy whether the company might collapse under the weight of its problems.
"We were very concerned early on," says Fruman Jacobson, a lawyer for unsecured creditors. "They were losing a ton of money and had pinned their hopes on a government loan."
United and its army of lawyers, investment bankers and consultants set about leveraging every possible provision of the bankruptcy laws to cut costs. The work of bankruptcy hasn't come cheap: United has racked up legal and consulting fees of about $10 million a month for the past 37 months.
United employees agreed to two rounds of deep pay cuts. Thousands of employees lost jobs -- their work eliminated or contracted out. Thousands more retired early. United terminated all of its employee pension plans to eliminate $10 billion in pension liabilities. The federal Pension Benefit Guaranty Corp., which insures pension plans, assumed responsibility, but workers lost billions in benefits that weren't covered.
Seven months after filing for court protection from its creditors, Northwest has rapidly slashed costs, trimmed its flight schedule, renegotiated leases and taken the first steps toward revamping...