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United Cleared to Taxi Out of Bankruptcy

January 23, 2006

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A federal bankruptcy court has cleared United Airlines' plan to emerge from bankruptcy after three years.

U.S. Bankruptcy Judge Eugene Wedoff accepted United's financial flight plan and said the troubled carrier could emerge from bankruptcy protection February 1.

United's troubles began long before the September 11, 2001 terrorist attacks through U.S. airlines into a tailspin. The company was barely profitable in 2000 and has been hemorrhaging red ink ever since.

But despite those huge losses, Wedoff voiced optimism the company's bankruptcy exit plan puts it on the right track to square its accounts with creditors.

United's post-bankruptcy plan calls for it to remake itself into a smaller, more competitive carrier by streamlining operations and improving service with upgrades in computer systems and ground equipment.

While in bankruptcy, United renegotiated union labor contracts, slashing about $7 billion in operating costs. In the process, it eliminated 25,000 jobs and got rid of employees' defined-benefit pensions, thereby reducing one of the biggest drags on profitability.

It also cutback flights, selling off more than 100 jets from its massive fleet, and crushed at least one new competitor, Independence Air.

While the bankruptcy agreement resolves United's issues with its employees and creditors, it does nothing about skyrocketing fuel prices. Analysts say the new, leaner United Airlines is re-emerging at a time when skyrocketing oil prices are applying fierce pressure on all carriers.

Northwest Airlines, which declared bankruptcy in September 2005, said it will need about $2.25 billion in order to put its house in order. The airline was in court last week, telling a bankruptcy judge that its plan is to emerge from bankruptcy protection in early 2007.

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