While United Airlines is about to emerge from more than three years of bankruptcy reorganization, two of its biggest rivals, Delta and Northwest, are still in the early stages of restructuring their own finances under Chapter 11.
Airline experts don't expect Atlanta-based Delta Air Lines Inc. and Eagan, Minn.-based Northwest Airlines Corp. to take as long to reorganize as United did. But the carriers do face some of the same issues that helped extend United's case, including the fate of their employee pension plans, and they're expected to take their time to try to get themselves on a secure financial footing.
"An intelligent airline these days is not going to be in a rush to get out of Chapter 11," said William Rochelle, an airline bankruptcy lawyer in New York.
UAL Corp., the parent of Elk Grove Village, Ill.-based United, spent 38 months on a Chapter 11 case that is scheduled to end with its emergence Wednesday. The company's stay in bankruptcy was complicated by soaring fuel prices, difficulties in obtaining two rounds of cost concessions from its unions and its failure to secure a federal loan guarantee, among other issues.
Delta and Northwest both filed for bankruptcy on Sept. 14.
Delta and its pilots are still battling over a second round of pay and benefit cuts, an issue that could drag out its bankruptcy case. The two sides have a March 1 deadline to work out a permanent concessions package, with the company demanding $325 million in annual cuts and the pilots union offering about $115 million.
If they can't agree, a three-member arbitration panel would decide whether to throw out the pilot contract, as requested by the company. Contract rejection could trigger a pilot strike, something Delta has said would put it out of business.
The airline, meanwhile, has rejected several dozen aircraft leases and has laid out a $3 billion cost savings and revenue improvement plan. It says it has already identified and implemented the initiatives intended to achieve 70 percent of the savings it is seeking.
"Our aspiration is to come out of bankruptcy sometime in the summer of 2007," said Delta spokeswoman Chris Kelly. "Our restructuring process is largely on schedule, but there's still a tremendous amount of work ahead."
The process, of course, is costly. Delta is spending about $13 million to $14 million a month for professional fees. Those fees cost United about $10 million a month.
Northwest says it still faces a host of major issues in bankruptcy, including reducing its fleet, getting a handle on its pension debts and establishing a new regional subsidiary. But what's getting the most attention right now is the airline's goal of getting $1.4 billion in annual savings from its labor unions.
Northwest and its pilots have been negotiating for three weeks in New York, where the airline also is asking a bankruptcy judge to nullify the labor contracts for the pilots and flight attendants unions. The pilots and flight attendants have maintained they have already given enough concessions and contend Northwest management is asking for more than it needs.
The hearings resume Tuesday. If agreements aren't reached, U.S. Bankruptcy Court Judge Allan Gropper is expected to decide on voiding the contracts on or before Feb. 16 unless all sides request an extension.
United set the precedent for pension cuts and heavy employee pay and benefit reductions, likely making it easier for Delta and Northwest to pursue those options. Neither has announced plans for the future of their pension plans, though Delta and Northwest are hoping to get pension relief from Congress.
United's case was somewhat unique in that it sought in vain to get a federal loan guarantee, a process that cost it 1 1/2 years. When that failed, it went after pensions as part of a bid to secure financing elsewhere. That effort likely added months or more to the case, in addition to straining relations with employees further.
While there are differences among the Delta, Northwest and United bankruptcy cases, the greatest similarity is the carriers' heavy debt obligations.
High fuel costs and competition from discount rivals have helped contribute to $58 billion in net losses since January 2001 at the six legacy carriers, those with a large presence in multiple regions prior to deregulation in 1978. The total includes enormous charges United's parent took in the fourth quarter of last year.
"The smartest or luckiest thing UAL did was stay in bankruptcy for three years," said Rochelle, the New York bankruptcy lawyer. "Had they rushed to confirm a plan, they would likely have needed a return visit to Chapter 11."
Several other carriers also filed for bankruptcy in recent years during the industry downturn, including Hawaiian Airlines, ATA Airlines and US Airways Group Inc. Hawaiian emerged from Chapter 11 in June 2005 and US Airways exited bankruptcy last fall after receiving approval to merge with America West Holdings Corp.
On Monday, a judge cleared the way for ATA Airlines and its parent company ATA Holdings Corp. to emerge from bankruptcy. The Indianapolis-based carrier is expected on Tuesday to announce the date it will emerge after paperwork is filed.
AP Business Writer Dave Carpenter in Chicago and AP writer Chris Williams in Minneapolis contributed to this report.
On the Net:
Delta Air Lines Inc.: http://www.delta.com
Northwest Airlines Corp.: http://www.northwest.com
United Airlines: http://www.united.com
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