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Responding to changes in the airline industry and feedback on its loan guarantee application with the Air Transportation Stabilization Board (ATSB), UAL Corporation (NYSE:UAL), whose principal operating company is United Airlines, announced today it is changing its business plan to build a stronger, more cost-competitive airline. As a result, the company is updating its application with the ATSB to include significantly broader, deeper and longer-term cost savings.
“The world has changed,” said Jack Creighton, chairman and chief executive officer. “Revenue isn’t coming back the way the industry expected. Demand isn’t returning, fares remain low, and the industry is grappling with how to respond. At United, we have determined that we must make improvements in our business plan to ensure we get the cost savings we need to compete in an industry that has fundamentally changed. And our conclusions are consistent with the feedback we’re getting from Washington.”
The enhanced plan will supplement United’s work over the past 11 months to cut expenses, boost revenue and retool its operation. Since Sept. 11, United has:
Reduced its schedule, furloughed employees, retired fleets and made dramatic
cuts in capital spending.
Eliminated base commissions.
Formulated a plan to increase network efficiency, reduce the cost of sales, better manage air traffic, focus on under-performance of certain distribution channels and customer segments; realign premium customer products; and improve processes and productivity.
Announced a code-share agreement with US Airways that is expected to generate more than $200 million in annual revenue.
“Despite those efforts, we have to do more,” Creighton said. “We are facing debt payments of $875 million in the fourth quarter and we have insufficient access to the public capital markets to repay them. To avoid this liquidity crisis, Jake Brace, our executive vice president and chief financial officer, has been asked to lead the company’s intensified recovery effort.
“We have given ourselves a very short timeframe - 30 days - to conclude our discussions with all stakeholders,” Creighton said. “As a result, the changes we need to make are urgent, significant and immediate. Simultaneously, we are preparing for the potential of a Chapter 11 bankruptcy filing this fall, due to our fourth quarter debt payments. Unless we lower our costs dramatically, filing for bankruptcy protection will be the only way we can ensure the company’s future and the continued operation of our airline.”
As part of these intensified efforts, the company in the coming days will present new cost-saving proposals to employee representatives and other stakeholders.
“Whatever course we take, we have one message for customers: our recovery efforts are about the long-term health of United Airlines,” Creighton said. “We will do whatever it takes to continue to meet the needs of our customers for many years to come.”
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