United Airlines says $500 million more in cost-cuts needed

Previous savings goal of $600 million revised, for a total of $1.15 billion

September 17, 2004|By Melissa Allison | Melissa Allison,CHICAGO TRIBUNE

CHICAGO - United Airlines said yesterday that it needs to shave about $500 million more in costs over what it announced just two weeks ago.

The carrier has not decided where it will make the additional cuts, spokesman Jeff Green said.

The disclosure came in a filing to update a U.S. Bankruptcy Court judge on the airline's status for a hearing today.

"We haven't been advised of any new cost-cutting programs by United Airlines," said Joseph Tiberi, a spokesman for the International Association of Machinists and Aerospace Workers.

More employee outrage could create problems in bankruptcy court. A judge warned the airline last month to mend relationships with unions and others who have felt the company is making major financial decisions - such as stopping pension fund contributions - without their input.

Yesterday's announcement came two weeks after United said it had identified more than $600 million in cost savings that it has to arrange, much of it expected to come through job cuts and outsourcing in maintenance, airport operations and other areas. Chief Executive Officer Glenn F. Tilton said yesterday that the figure for those cuts is closer to $655 million.

The additional $500 million announced yesterday, for which the airline has no firm plan on how to reach that number, brings the total in new cuts to $1.15 billion - nearly 8 percent of its 2003 operating expenses - even if it terminates its pension plans, which the government estimates are under-funded by $8.3 billion.

Employees have said they already have given up too much during United's 21-month bankruptcy.

Before the latest announcements, about half the $5 billion that United had planned to cut by 2005 has come through wage and benefit reductions.

The $1.15 billion in new cuts underscores United's precarious situation as it struggles to find financing to allow it to emerge from bankruptcy protection and become a viable airline again.

It lost $6 million in July, typically one of the airline's most profitable months.

United has continued to shave costs in the face of unrelenting competition spurred by low-cost carriers such as Southwest Airlines, and oil prices that continue to hit record highs and remain above $40 a barrel. "This relentless pressure is not going to change in the near term, which means United has much more to do, and many tough decisions ahead," the filing said.

Since being denied a federal loan guarantee for exit financing this summer, United has said it likely will terminate employees' pension plans and will cut an undisclosed number of jobs.

The head count at United already is down about 40 percent from mid-2001, to about 62,000 people from more than 100,000.

In its filing yesterday, United outlined ways in which it is keeping in closer touch with its unions and others.

Still, two unions have asked the judge to appoint a trustee to take over daily control of the airline, and the flight attendants union wants the court to allow outsiders to bid for control of the carrier's bankruptcy exit plan.

"In light of sharp increases in fuel prices and the persisting weakness in yields," United's filing said, "there is no hiding from the unpleasant reality that, to secure exit financing not guaranteed by the [Air Transportation Stabilization Board], the company believes that it will require hundreds of millions of dollars in additional cost reductions - indeed, in the neighborhood of $500 million."

United is not the only carrier in dire financial trouble. US Airways filed for Chapter 11 protection Sunday for the second time in two years. And Delta Air Lines - financially the nation's strongest carrier before Sept. 11, 2001 - and low-fare ATA Airlines have said they might have to file for bankruptcy protection as well.

Many fear a domino effect that could send other airlines, currently considered somewhat healthy, running for Chapter 11 protection to gain the cost reductions necessary to compete with their bankrupt competitors.

The Chicago Tribune is a Tribune Publishing newspaper.

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