United files reorganization plan, sees February bankruptcy exit
United Airlines yesterday filed its Plan of Reorganization and Disclosure Statement, beginning the final leg of a journey through the bankruptcy process that began in December 2002.The company set Feb. 1, 2006, as its target for exiting Chapter 11. "United has made tremendous progress in our restructuring to improve performance across the board, in costs, revenue, operations and service to our customers. Today, we are more flexible, more efficient and more resilient," Chairman, President and CEO Glenn Tilton said in a statement.
Under the proposed plan, unsecured creditors holding allowable claims of $20-$30 billion will receive 4-7 cents on the dollar, payable in a new UAL common stock. Exit from bankruptcy will be financed with $2.5 billion in new borrowing and United also is exploring the possibility of a rights offering in which unsecured creditors would have the opportunity to purchase on a pro rata basis approximately $500 million of new common stock. Current holders of common and preferred stock and the 13.25% Trust Originated Preferred security will receive nothing.
United workers, in addition to receiving stock, will receive convertible notes totaling more than $650 million. The largest share, $550 million, will go to members of the Air Line Pilots Assn. The plan provides for $56 million in notes for salaried and management employees, although a decision has not been made on whether or not the notes will be issued.
Through the restructuring, United said it reduced total labor costs from $7 billion in 2002 to $5 billion in 2005 and expects to save a further $874 million by year end. CASM excluding fuel fell 18%. The POR shows the company posting an operating loss of $295 million this year, widening to a deficit of $3.7 billion on the bottom line owing to bankruptcy-related costs. However, the carrier forecasts it will enjoy an operating profit of $916 million in 2006, rising to $10.4 billion on the bottom line owing to paper gains from adoption of fresh-start accounting after it leaves bankruptcy. It estimates unit cost in 2006 excluding fuel will be 7.56 cents per ASM. CASM excluding fuel for the second quarter of 2005 was 7.53 cents. Fuel is projected to average $50 per barrel during the 2006-10 period of the POR forecast.
"Three years ago, Continental was viewed as the leading network carrier in unit cost and United had a 16% gap. Today, excluding fuel, United has reached virtual parity," the company said in a memo to employees.
Separately, data from Northwest Airlines for the second quarter ended June 30 show that on a stage-length-adjusted basis, United's labor cost per ASM was 3.9 cents. This was better than American (4 cents) and Northwest (4.4 cents), but slightly above Continental (3.6 cents) and still much higher than Southwest (2.6 cents), JetBlue (2.1 cents) and AirTran (1.7 cents).