United Airlines files for bankruptcy

United Airlines filed for bankruptcy today, the largest such case ever in the global airline industry, after high costs and low air fares left the world's No. 2 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 U.S. 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 further and deeper in our efforts to reduce our costs," he said. "We are developing a very compelling plan of reorganization that will enable us to successfully emerge as a stronger company with a competitive cost structure."

United, 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 U.S. 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 labor troubles and some of the highest wage costs in the industry, the downturn has also proved too difficult to navigate. The U.S. 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 additional $500 million in annual wage concessions by a group of 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. "Unfortunately, that's the most unproductive thing that United and its employees and creditors can do at this time, given that time is of the essence."

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.

United confirmed it arranged with a group of banks for $1.5 billion in financing to see it through bankruptcy. At the final hour, GE Capital pulled out of the group of lenders and was replaced by CIT Group.

The other three lenders are JP Morgan Chase, Citibank and Bank One. Bank One, based in Chicago, will take the heaviest exposure at $600 million. Of its share, half or $300 million is a separate credit line. The remaining $1.2 billion of the financing is divided equally among the four institutions.

Banks and others are willing to lend United the money in bankruptcy because these particular credit lines get paid back first.

United, based in the Chicago suburb of Elk Grove Village, Illinois, has hired two high-profile public relations firms to help it present the bankruptcy in the best possible light and encourage travelers to continue to use the airline.