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Chicago, Dec. 9 (Reuters): United Airlines filed for bankruptcy on Monday, the largest such case ever in the global airline industry, after high costs and low air fares left the world’s number two carrier with too much debt and not enough cash.
United, a unit of UAL Corp, will continue to fly worldwide as it attempts to reorganise under protection from the US Bankruptcy Court in the Northern District of Illinois.
Judge Eugene Wedoff, chief of the bankruptcy court in Chicago, will preside over the huge bankruptcy case, which the airline said it hopes to complete within 18 months.
The airline stressed in a statement it will be “business as usual” for customers. But for employees, suppliers and others, changes are in store, said chief executive Glenn Tilton.
“During the Chapter 11 process, we will go deeper in our efforts to reduce our costs,” he said. “We are developing a very compelling plan of reorganisation that will enable us to successfully emerge as a stronger company with a competitive cost structure.”
United Airlines Glenn Tilton said he will consider selling some assets as the airline begins to reorganise under court protection. Tilton said he plans to “stress test” the airline’s assets and see which ones still fit.
The airline, with about 83,000 employees, had two of its Boeing jets commandeered in the devastating attacks on New York and Washington on September 11, 2001.
Since then it has posted nearly $ 4 billion in losses, with no end in sight to the red ink.
Another big US airline, Arlington, Virginia-based US Airways Group, filed for bankruptcy in August, and several smaller carriers have shut down altogether.
For United, which has a history of labour troubles and some of the highest wage costs in the industry, the downturn has also proved too difficult to navigate. The US government last week rejected the airline's bid for federal loan guarantees, which had been its last hope for securing fresh capital.
The court filing has been widely expected and analysts generally predict a successful although lengthy court process.
“The odds clearly favour a reorganisation, but that is by no means a foregone conclusion,” said Gary Chase, airline analyst at Lehman Brothers. “United and its employees and suppliers have to quickly address the company's heavy cash burn in order to ensure a successful reorganisation.”
Sources familiar with the situation said the government's rejection, which angered unions and some politicians, came despite a last-minute offer of an extra $ 500 million in annual wage concessions by unions.
Leaders of United’s key unions agreed to a total of $ 5.2 billion in wage cuts over 5-1/2 years, but rank-and-file mechanics rejected their $ 700 million portion the night before Thanksgiving, dealing the bailout plan a blow. United is 55 per cent employee-owned, and the pilots and machinists each have a seat on the company's board after a 1994 employee stock ownership plan was put in place. A simple majority vote from the board was required to approve a bankruptcy filing. Bankruptcy usually leaves a company's common stock worthless.
“The natural tendency in situations like this is to waste energy placing the blame,” Chase said.
UAL shares were trading at 55 cents in preopen dealings on Monday, down from a Friday close at 93 cents on the New York Stock Exchange.