United shifts bankruptcy exit goal to mid-January

Airline will mark 3 years under court protection

September 07, 2005|By Mark Skertic | Mark Skertic,CHICAGO TRIBUNE

United Airlines has now targeted mid-January for its exit from bankruptcy, meaning it will miss its goal to emerge in 2005 and will pass a third anniversary operating under court protection.

The airline is expected to file its reorganization plan with the bankruptcy court in Chicago today.

Last week, it filed a proposed plan confirmation schedule that would culminate with hearings the third week of January. Those hearings are expected to take several days.

The No. 2 carrier had hoped to leave bankruptcy protection this fall, but meeting such a schedule proved overly optimistic when the filing of the reorganization plan was delayed last month at the request of creditors. The committee representing those owed money by United wanted more time to review the proposal.

"When the creditors asked for additional time, we indicated that would impact the timing and that we expected we would be exiting bankruptcy later this fall or early next year," said spokeswoman Jean Medina. "This gives us time to work collaboratively and cooperatively with the creditors for a smooth exit."

United said it has received financing proposals from banks and other lenders for $2.5 billion to $3 billion to enable the airline to leave bankruptcy.

While operating under the court's supervision, United has cut $7 billion in spending, largely by reducing payroll and cutting the pay and benefits of the remaining employees. It has been able to renegotiate some contracts and get out of others that had become too expensive.

Efforts to bring costs under control paid off in July when the airline posted a $113 million operating profit, up from $51 million a year ago, despite a 46 percent surge in fuel prices. Still, a $274 million net loss that month made it clear that United must still improve its financial performance. Fuel costs remain a problem for United and other airlines. Analysts have warned that if costs remain at or near record levels, other carriers, including Northwest Airlines and Delta Air Lines, also could be forced into bankruptcy.

United also has told the bankruptcy court that it wants to sell MyPoints.com Inc., an Internet-based direct marketer that rewards customers for online product purchases. The airline has asked the court for permission to enact a financial bonus program to help retain nine key employees whose absence could adversely affect the sale price.

United subsidiary United NewVentures paid $112.5 million in cash for MyPoints.com in June 2001.

The plan includes retention and severance payments and a sales incentive. The severance and retention amounts could cost the airline up to $570,000. The sales would be triggered once the sale price reached $21 million. It would increase incrementally until the price reaches or passes $51 million.

Employees would receive between 0.25 percent and 5 percent of the final sale price, depending on the amount the airline receives.

The Chicago Tribune is a Tribune Publishing newspaper.

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