United Airlines Files for Bankruptcy Protection

The UAL Corporation, United’s parent company, listed $22.8 billion in assets and $21.2 billion in liabilities when it filed in Federal Bankruptcy Court in Chicago, making it the largest bankruptcy in aviation history and one of the ten largest American corporate bankruptcies as measured by company assets.

Last week the U.S. government rejected the airline’s bid for federal loan guarantees, paving the way for Monday’s bankruptcy filing.

United filed after it secured $1.5 billion in loans from several banks to keep its flights operating. The banks that provided this financing will be the first creditors the airline is scheduled to repay.

The court filing has been widely expected and analysts generally predict a successful, albeit lengthy, court process.

“The odds clearly favor a reorganization, but that is by no means a foregone conclusion,” Gary Chase, an airline analyst at Lehman Brothers, told Reuters. “United and its employees and suppliers have to quickly address the company’s heavy cash burn in order to ensure a successful reorganization.”

The carrier is 55 percent owned by its employees under a 1994 plan that is partially blamed for the high labor costs that contributed to the company’s struggles.

The suburban Chicago-based company cut service and laid off nearly 20,000 workers after the Sept. 11 terrorist attacks, but that hasn’t come close to making up for revenue lost from the drop-off in business travel.

The carrier already had lost about $1 billion since between mid-2000 and September 2001 because of labor turmoil, high wage costs structure and several failed strategies, including a costly and time-consuming bid to acquire US Airways — itself now in Chapter 11 bankruptcy.

United has promised to keep flying while it cuts costs under the auspices of a bankruptcy judge and overhauls its business plan to try to become profitable again.

In a statement on the company’s Web site, United stressed that travel will remain “business as usual” for their customers. However, United’s 83,000 employees will be asked to make sacrifices.

United Chief Executive Glenn Tilton told Reuters that $9 billion in wage concessions may be necessary to help turn the airline around. A bankruptcy court judge could also dissolve the employee stock ownership plan.

In addition to wage concessions, Tilton said that he will consider selling some of the airline’s assets as it reorganizes under bankruptcy protection.

“I’m going to ask whether they’re core to the proposition of the new United,” Tilton said. “If they’re more value to somebody else than they will be to the new United, then they’re likely for sale.”