United Airlines calls June bankruptcy exit premature

CHICAGO -- United Airlines said Thursday it will take longer than planned to get out of Chapter 11 bankruptcy, telling federal bankruptcy court it would be premature to emerge by June 30 as intended with several critical issues still unsettled.

The nation's No. 2 carrier did not cite a new target date but said it expects to be able to exit sometime this summer if it soon receives a $1.6 billion federal loan guarantee and Congress approves pending legislation granting airlines pension relief.

United did have one bankruptcy challenge ruled in its favor Thursday -- a dispute with its flight attendants over a decision to cut retiree health care benefits.

An independent examiner said despite conflicting accounts about the airline's comments and intentions on the matter during union negotiations a year ago, United did not mislead employees about its plans in order to get people to retire early last summer.

Examiner Ross Silverman said in a 40-page report filed with the court that United made the decision to reduce benefits no earlier than Dec. 15, after it discovered a $456 million budget gap due to updated projections of 2004 operating expenses. He said there was no evidence that the airline had a financial incentive to induce flight attendants to retire.

Peter McDonald, United's executive vice president for operations, said the findings make clear the company told the truth.

"The allegations from the Association of Flight Attendants were a distraction that led to a colossal waste of time and resources, and the examiner's report is an emphatic repudiation of those baseless claims," he said.

A spokeswoman for the flight attendants' union, Sara Nelson Dela Cruz, maintained that the report shows United executives knew for months they likely would seek to cut benefits and said their deception may have "irreparably harmed" relations with the employees.

"We are relieved to know that UAL did not intentionally defraud flight attendants," she said. "But the report also reveals that UAL did not deal with AFA honestly and forthrightly as required by law during the time that the massive employee concessions were bargained."

In its court filing earlier, United said that despite restructuring efforts that have made it a "stronger and more sustainable company," much work remains to be done and some aspects of the timing are beyond its control.

"United needs to take the time necessary to complete its restructuring methodically and systematically, rather than emerge prematurely," the airline said in a filing on the eve of its monthly bankruptcy court hearing.

Airline analyst Ray Neidl of Blaylock and Partners said the delay carries no immediate significance but underscores the importance of United's unresolved issues. "The bottom line is they need to get that unfunded pension liability issue solved before they can get the loan guarantee," he said.

United said when it filed for Chapter 11 bankruptcy in December 2002 after incurring more than two years of heavy losses that it expected to spend about 18 months in bankruptcy. It spent 2003 slashing labor costs, negotiating new aircraft leases and obtaining $2 billion in financing from J.P. Morgan Chase and Citigroup, and told the court in January it was on track for a June 30 exit.

But restructuring efforts by the Elk Grove Village, Ill.-based carrier have since stalled.

The Air Transportation Stabilization Board, which rejected United's bid for a federal loan guarantee just before it filed for bankruptcy, has not ruled on its 3-month-old request for a $1.6 billion guarantee. The exit financing that United obtained hinges on the loan guarantee being approved.

United also is in urgent need of pension relief before it can emerge and is hoping for congressional passage within the next month of a bill that would effectively grant airlines a two-year delay in pension payments. Under current law, United parent UAL Corp. faces $4.8 billion in required payments to its pension plan trusts by the end of 2008.

A cash crunch for United and other carriers has been worsened lately by a sharp jump in the cost of jet fuel, the airline's second-biggest expense after labor. Jet fuel now costs more than $1.03 a gallon, up 50 percent from two years ago -- an increase costing United hundreds of millions of dollars a year.

Shares in the company fell 1 cent to close at $1.42 in over-the-counter trading Thursday.

------

On the Net:

www.united.com