ELIZABETH BRACKETT: The nation's second largest air carrier lost its battle to stay out of the bankruptcy courts. And this morning the CEO of United Airlines was at Chicago's O'Hare Airport, reassuring travelers that bankruptcy would not affect the airline's performance.
GLENN TILTON, CEO, United Airlines: Service can only get better now that we are in Chapter 11. We have an absolute unequivocal focus on the customer because as everybody here with United at O'Hare knows, it's the customer, it's the customer, it's the customer. So service will be fine.
ELIZABETH BRACKETT: United filed for chapter 11 protection in federal court in Chicago after lining up $1.5 billion in financing for day-to-day operations. CEO. Glenn Tilton told reporters that United's fiscal woes stemmed from September 11 and a faltering economy that had kept travelers away.
GLENN TILTON: We did not see the return of the business traveler as we might have expected. So what we saw was the business that is being referred to as the disinclination to fly, and the disinclination to fly continues. It was exacerbated by what you have come to describe as the hassle factor.
ELIZABETH BRACKETT: United's hopes for avoiding bankruptcy were dashed last week when the Air Transportation Stabilization Board turned down its request for a $1.8 billion loan guarantee. With almost $900 million of debt payments due this week and $1 billion of cash on hand, the company had little choice but to file for bankruptcy. The loan turndown angered United 777 pilot Herb Hunter.
HERB HUNTER: I've questioned several times in the press if ATSB really... if the "s" really stands for "stabilization," because if it does, then there's not one reason in the world why United Airlines wasn't included. Back on September 11, we'd had some problems before. That's true. But we lost two aircraft. Two of our crews, pilots and flight attendants, were assassinated in this attack on our country. And to say that we don't qualify or that this wasn't meant for an airline like us is ridiculous beyond my comprehension.
ELIZABETH BRACKETT: Pilots and other United employees were particularly angered by the loan turndown because they had just agreed to $5.2 billion in wage cuts. The wage cuts were part of United's financial recovery plan presented to the ATSB. Flight Attendant Sara Dela Cruz says her union agreed to $412 million in cuts as part of the package.
SARA DELA CRUZ: Flight attendants have been outraged. And we made the really tough decisions to contribute more to the success of the company and to keep it out of court and to work towards a successful restructuring, and it's just a devastating blow.
ELIZABETH BRACKETT: United mechanics had initially voted down the recovery plan, but union vice president Michael Peat says the mechanics were ready to agree to the wage cuts. A second vote on the plan was canceled after the loan turndown.
MICHAEL PEAT: The federal government seems to have billions of dollars to finance everything around the world from foreign aid to their financing this war with Iraq, and what they're doing in billions of dollars a day are being spent for that. You would think that $1.8 billion or $1.9 billion to save an industry, to help an airline, especially a premier airline like United Airlines and to keep them flying where they're such a massive employer, for them not to fund that and to not support that, I think, is tragic.
ELIZABETH BRACKETT: But Chicago Tribune business columnist David Greising says United's union concessions were never enough to stave off bankruptcy.
DAVID GREISING: The concessions were significant. I think they deserve a lot of credit. There was a lot of leadership shown by the unions in getting $5.2 billion in concessions. But remember, last summer when United first applied for a loan, they said they needed $9 billion dollars in concessions. They didn't get there, and that's the reason they didn't get the loan.
ELIZABETH BRACKETT: Though other airlines have gone bankrupt, none have been as big as United, with 83,000 employees worldwide; though the biggest impact will be felt in United's home state of Illinois, says the state's governor, George Ryan.
GOV. GEORGE RYAN: United is responsible for some 18,000 jobs in Illinois, and then you've got all the ancillary services that are provided. I don't know how many jobs that are there. But it's going to have an impact. It's not good for Illinois, especially with our economy in the shape that it's in now, and our revenues in a falling state. This can't be helpful.
MAN: One of the interesting things about news reports on... United somehow thinks that things are dramatically going to change in bankruptcy.
ELIZABETH BRACKETT: University of Chicago law professor Douglas Baird says while filing for bankruptcy will help United hold off creditors in the short term, the airline must still face its long-term financial problems.
DOUGLAS BAIRD: United Airlines is now losing $5 million to $7 million a day. The reality is that chapter 11 can't change that. To put it bluntly, United Airlines is bleeding to death, and if it doesn't stop bleeding, it's going to die. So what they have to do is they have to come up with a coherent business plan. The bankruptcy code doesn't tell them how to do that, the bankruptcy judge is not going to tell them how to do that. They've got to come up with this plan on their own, and if they don't, they're going to die.
ELIZABETH BRACKETT: And what worries United employees the most is that that new business plan could cancel existing union contracts.
HERB HUNTER: Somebody in a black robe will be making a lot of decisions, not only as to our finances and to the fringe benefits, but maybe how many people are going to be here. How small would a court want to make us to emerge from bankruptcy?
ELIZABETH BRACKETT: None of this was supposed to happen in an airline highly touted as employee-owned. In 1994 pilots, mechanics, and other employees voted to buy stock in the airline, in part, to avoid the possibility of a bankruptcy then. Since that time, employees have owned 55 percent of the stock in the airline and have three seats on the board of directors, but it hasn't always been a peaceful co-existence.
HERB HUNTER: Despite what you read in the... in the financial publications, this owner-run airline isn't... it isn't what it seems. The inmates aren't running the asylum, they never have, and we've never had quite the power that some people say we have. It's too bad we haven't. Maybe we'd do better.
ELIZABETH BRACKETT: Owner-employees could not sell their stock, and they've watched its value plummet. Captain Hunter says four years ago, his stock was worth $400,000. Last week it had dropped to $7,200 and is likely to hit zero with the bankruptcy filing. It's the second time around for Peat. He lost his job and three-quarters of his pension benefits when Continental Airlines went bankrupt in 1983. He says employee ownership at United has made no difference.
MICHAEL PEAT: Well, 55 percent of nothing is still nothing. I have no expectations of getting my $60,000 of hard cash that I put into this stock. And I don't even hear any lament from the company. Have you heard anybody say that "we're sorry," anybody apology that we've squandered your money away? They can't lay this on the events of September 11th.
ELIZABETH BRACKETT: United management did make some bad decisions, like the ill-fated attempt to buy U.S. Airways, says law Professor Baird. But he says United and other international carriers have been hit harder by the airline industry's economic woes than low-cost airlines like Southwest.
DOUGLAS BAIRD: We have some airlines like southwest that basically give point-to-point service and that has show a way of making money. What we haven't seen after September 11th is a way of making money when what you're doing is running a national airline. So you can go to O'Hare and fly to anywhere in the United States, anywhere in the world using United Airlines. What we don't know is how to make that kind of firm profitable.
ELIZABETH BRACKETT: Whether or not United can figure out a way to become profitable will be the key to whether it can emerge from bankruptcy, says bankruptcy attorney Mark Thomas.
MARK THOMAS: This is not a case where the company and its creditors and the unions and the bondholders have agreed in advance on their exit. They haven't agreed on a new capital structure. They haven't agreed on a business plan. So for a traditional bankruptcy such as this with a case of this size and magnitude, I think a two-year case would be a very expedited case. It could take longer.
ELIZABETH BRACKETT: No matter how long it takes, Captain Hunter insists the bankruptcy filing will not affect job performance.
HERB HUNTER: I fly the Boeing 777. I don't want discussions in my cockpit of this current situation before we get taken off and get up to cruise altitude. I don't want to get people thinking about the wrong thing. I fly an airplane. Every time I go to work, I sign a piece of paper that makes me legally responsible for an aircraft that costs $200 million. I have 300 or so people in the back of my airplane. So when I push the throttles up on that 600,000-pound airplane, I want to be thinking about that airplane; I don't want to be thinking about bankruptcy.
ELIZABETH BRACKETT: United knows that it is critical that the flying public remain confident about the airline. A slowdown in reservations could make it impossible to successfully restructure. So far, travelers we talked to had not been scared off by bankruptcy.
DAN DOCZI: I think to the average traveler, you won't see much of a difference, unless there's a lot of cutbacks in flights. If I can't get the flight times or the schedules to go to the different cities that I need to, then, you know, I'll consider going to another airline, but as long as I don't see to myself a big change, then no.
KATHY MACCHIAROLA: I hope they pull out of this because I do prefer this airline actually.
ELIZABETH BRACKETT: You worried about your frequent flier miles?
KATHY MACCHIAROLA: Of course.
ELIZABETH BRACKETT: In its strong pitch to the flying public today, the airline insisted that mileage programs would remain intact, all tickets would be honored, and service would not be interrupted as the airline works its way through bankruptcy.
JIM LEHRER: For the record, United's management declined our request for an interview.