Judge OKs United Airlines’ reorganization plan

United Airlines Hopeful On Emerging From Bankruptcy
Once United's restructuring is ended, the airline plans to spend more money this year on improvements, allocating $400 million for capital improvements such as more check-in kiosks, refurbished airplane interiors, upgraded computer systems and new ground equipment.Tim Boyle / Getty Images file
/ Source: The Associated Press

United Airlines’ tortuous restructuring came to a virtual end Friday in a bankruptcy courtroom.

But passengers won’t see a sudden transformation when it comes out of Chapter 11 on Feb. 1. Three years of changes already have turned the nation’s No. 2 airline into a leaner, more efficient carrier.

It has fewer and less well-paid employees than when it went into bankruptcy in December 2002, a smaller, younger fleet of airplanes, a better on-time record — and onboard meals are no longer free.

All that’s left to do is make a profit again, along with the company’s promise to return its full focus to the customer.

“I think passengers will start to notice a difference as soon as United starts reinvesting” in its operations this year, said industry consultant Robert Mann.

That is expected to come within months as parent UAL Corp. spends an expected $400 million in 2006 on refurbishing airplane cabins, adding more check-in kiosks, upgrading computer systems and buying new ground equipment.

CEO Glenn Tilton told employees that because of all the changes United already has made, competitors already are concerned.

The approval of its reorganization plan by U.S. Bankruptcy Judge Eugene Wedoff removed the final obstacle to United’s exit from bankruptcy after the largest and longest airline bankruptcy ever.

The latest surge in oil prices back toward $70 a barrel, far above the $50 average that management is counting on to get into the black this year, underscored how difficult it will be for even a restructured United to make money. The company has net losses of over $15 billion since mid-2000.

But Friday, as the judge noted, was a time for exultation and relief for all involved with the nation’s No. 2 airline that the costly reorganization is complete.

Despite the losses suffered by employees and UAL shareholders, Wedoff said there is “reason to feel good” about the confirmation of the plan, which settles the company’s accounts with its creditors and sets out its new financing obligations.

“Three years ago United Airlines was, bluntly, in danger of dying, with all of its assets liquidated and all of its jobs lost,” he said. Now, after restructuring its obligations, “once again it has the potential to be a profitable investment, a reliable business partner and a stable employer.”

At 37½ months and still counting, the restructuring has taken twice as long as the Elk Grove Village, Ill.-based company forecast. But the restructuring was extensive, covering all facets of the company.

United used the protection of federal bankruptcy law to trim $7 billion in annual costs, including two rounds of employee pay cuts; eliminate about 25,000 jobs; dump its defined-benefit pensions and reduce its cost structure. It also shed more than 100 airplanes from its fleet, cut some U.S. flights and expanded internationally.

Company executives were upbeat following the ruling but acknowledged the restructuring had been even more challenging than anticipated.

“It was every bit as difficult as we expected it to be and then some,” said Chief Financial Officer Jake Brace.

Tilton called Friday an important day.

“We are concluding our restructuring work and look forward to competing in the marketplace and focusing on our customers without distraction,” he said in a recorded message.

Tilton also thanked employees for their contributions, acknowledging that the last three years have been difficult because of the wage and benefit cuts and layoffs.

The airline’s move to eliminate traditional pensions and replace them with less lucrative 401(k)-style ones prompted the biggest turmoil of its bankruptcy. That battle ended earlier this week when flight attendants ended a yearlong legal fight against the company and reached tentative agreement on a replacement retirement plan.

Some unions and industry experts say employee morale could still be an issue after United leaves bankruptcy, particularly with resentment still high over the stock plan that will award 8 percent of the 125 million new UAL shares to 400 top managers.

Mann suggested there could be a “lighter tone” to United’s customer service, however, now that the cost-slashing of bankruptcy is a fait accompli.

“Employees absorbed quite a burden in the bankruptcy process,” said the consultant, based in Port Washington, N.Y. “They will now feel that phase of the company’s history is over and they can move on.” United itself must immediately start producing better financial results, he said, because of steep requirements to pay off its $3 billion in exit financing.

“The pressure is hardly off,” Mann said. “It’s just as much pressure as it has been, it’s just without the albatross of bankruptcy hanging over it.”

United now is a candidate to take part in an expected industry consolidation that already has seen US Airways join forces with America West in recent months, with other alliances or mergers anticipated.

“Consolidation is inevitable,” Brace told reporters after the hearing. “What our restructuring has done is give us the ability to participate in consolidation or not.”