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.”
Safe Harbor Statement: Some information in this press release is forward-looking and involves risks and uncertainties that could result in actual results differing materially from expected results. Forward-looking statements represent the company’s expectations and beliefs concerning future events, based on information available to the company as of the date of this filing. Some factors that could significantly impact net earnings, revenues, expenses, unit costs and capacity include, without limitation, the economy and the demand for air travel; the ability to reduce operating costs and conserve financial resources, taking into account increased costs incurred as a consequence of the September 11 terrorist attacks to the company; the higher costs associated with new airline security directives and any other increased regulation of air carriers; the significantly higher costs of aircraft insurance coverage for future claims caused by acts of war, terrorism, sabotage, hijacking and other similar perils, and the extent to which such insurance will continue to be available; the ability to raise and the cost of financing in light of the September 11 events and the possibility of any further credit downgrades of the company; the cost of crude oil and jet fuel; the airline pricing environment; industry capacity decisions; competitors’ route decisions; the satisfaction of the conditions to the pilots or management and salaried employees’ participation in the company’s financial recovery plan; the success of the company’s cost-reduction efforts; the success of the company’s implementation of its financial recovery plan; the outcome of the ATSB loan guarantee process; results of union contract negotiations and cost-reduction discussions and their impact on labor costs and operations; willingness of customers to travel; the mix of business and leisure fare travel; actions of the U.S., foreign and local governments; the stability of the U.S. economy; any additional terrorist activity and/or war; inflation; foreign currency exchange rate fluctuations; the economic environment of the airline industry and the economic environment in general.
Investors should not place undue reliance on the forward-looking information contained this press release, which speaks only as of the date of this filing. United disclaims any intent or obligation to update or alter any of the forward-looking statements whether in response to new information, unforeseen events, changed circumstances or otherwise.