United Airlines filed for bankruptcy on Monday after a weak economy, high costs and low air fares left the world's No. 2 airline with too much debt and not enough cash.
United, a unit of UAL Corp., will continue to fly worldwide as it attempts to reorganize under protection from the US Bankruptcy Court in the Northern District of Illinois.
United, with about 83,000 employees, had two of its Boeing jets commandeered in the devastating attacks on New York and Washington on Sept. 11, 2001. Since then it has posted nearly $4 billion in losses, with no end in sight to the red ink.
The bankruptcy is the largest ever in the global aviation industry, which remains mired in a historic money-losing downturn since Sept. 11.
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 labor troubles and some of the highest wage costs in the industry, the downturn has 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.
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.
UAL shares were trading at 55 cents in pre-open dealings on Monday, down from a Friday close at 93 cents on the New York Stock Exchange.
United has 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, sources said.
The other three lenders are JP Morgan Chase, Citibank and Bank One, they said. 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.
