CHICAGO, Dec. 9 (UPI) -- United Airlines Monday filed for Chapter 11 bankruptcy protection, the largest such filing ever by a U.S. airline.
The filing came as the nation's second-largest carrier faced nearly $1 billion in obligations it could not meet and followed a flurry of activity in the wake of the Air Transportation Stabilization Board's decision last week not to grant $1.8 billion in federal loan guarantees.
"We took the decision today to do what is right for this company now given the options that we had," said Glenn F. Tilton, United chairman, president and chief operating officer.
Tilton was at the United Terminal at O'Hare International Airport after the filing, shaking hands and seeking to reassure customers and employees that United will remain in business.
Two hearings were held in federal bankruptcy court Monday and court officials were forced to outfit a special courtroom to accommodate all those involved. While the second hearing was under way, United said it would implement wage cuts for its non-union employees beginning Dec. 16 and initiate talks with its unions on new giveback deals.
Corporate officers will take an average 11 percent pay cut while salaried and management employees will receive cuts of 2.8 percent to 10.7 percent, depending on what they earn. Merit raises and incentive payments also were rescinded.
It has been seven quarters since United made a profit. The airline has lost more than $2 billion so far this year and was on track to lose $2.5 billion, more than a quarter of expected industry losses of $8 billion to $9 billion. The company said Monday it was losing $22 million a day.
United pledged to keep flying during the reorganization and said it will honor all "current and future tickets." It also promised to keep its frequent flyer program intact.
Stock of UAL Corp., United's parent, closed at 93 cents on Friday and fell to 67 cents a share in trade on foreign markets before the opening of the New York Stock Exchange. It closed unchanged Monday on the NYSE.
"United Airlines will continue to provide customers with the same experience and level of service they have come to expect," said Tilton.
"Reorganization through Chapter 11 offers the best way to provide uninterrupted service to our customers around the world, safeguard the value of our businesses and assets, and, ultimately, emerge as a stronger, healthier and more competitive airline."
Tilton said the airline will focus on serving the customer and broadening the customer base. He said 99 percent of United flights operated Sunday, 93 percent of them on time, and predicted United would emerge from bankruptcy in about 18 months.
UAL arranged $1.5 billion in debtor-in-possession financing: $300 million from Bank One and a $1.2 billion from a group led by J.P. Morgan Chase and Citibank, and includes CIT Group and Bank One. Access to $700 million of the $1.2 billion is subject to certain conditions, including achievement of performance milestones.
Tilton said United would be able to access $300 million of the debtor-in-possession financing immediately and had $800 million in cash on hand and more than $24 billion in assets.
"In addition to approximately $800 million in unrestricted cash-on-hand, the ... financing will provide adequate liquidity to meet the anticipated needs of UAL and all of its operating units to continue normal operations throughout the Chapter 11 process," the company said in a statement.
"Since the tragic events of Sept. 11, 2001, and the slowdown of the economy, United has faced significant financial and operational challenges," the statement continued. "Changes in consumer behavior, particularly the reduction in business travel and the changes in business travel patterns, have led to a significant decline in revenues for United.
"Additionally, the company faced $875 million in debt maturities due during the fourth quarter of 2002. Given the changed operating environment, UAL determined that it had to implement far-reaching changes to its business to secure its position as a leading global airline."
United said it will work with creditors, union leaders, employee groups and other stakeholders to develop a reorganization plan that reduces costs.
"The company said that it will look at every aspect of its operations -- including work rules, fleet mix and routes -- and make changes that will ensure United continues to be a major player in the global airline industry," the company said, adding that changes in routes and service are likely.
In recent months, United had been negotiating with its unions to reduce labor costs by $5.2 billion. All but its 13,000 mechanics, represented by the International Association of Machinists and Aerospace Workers, went along.
The Association of Flight Attendants, which agreed to $412 million in givebacks, issued an angry statement blaming past UAL Corp. management, the travel industry slump and lobbying by rivals American and Continental airlines for United's bankruptcy after the ATSB rejected $1.8 billion in federal loan guarantees.
"It wasn't long ago that United Airlines was the biggest, best airline in the world. But a number of very poor decisions by recent CEOs, the loss of $20 billion in revenue among the major network carriers in our industry and the unethical collaboration between the Air Transportation Stabilization Board and some other airlines who stand to gain if United fails, combined to result in our carrier's bankruptcy filing," the AFA said in statement.
Scotty Ford, president of IAM District 141-M, called the filing a "disappointment."
"Although changes affecting United's employees are likely, it is unclear how soon those changes will occur," Ford said. "Bankruptcy can sometimes be a lengthy process."
Ford added the IAM does "not intend to be (a) passive participant ... Actually, we are primed to play an active role."
"There will undoubtedly be some tough times ahead in this process. We are all going to have to make some difficult decisions and make sacrifices. But as long as those sacrifices are fairly shared among all employees and as long as we can guarantee that we share in the good times in the future, we can come out of this process with an even stronger United Airlines."
The Air Line Pilots Association blamed the ATSB for the bankruptcy filing and called for a congressional investigation.
"It is absolutely astonishing that the ATSB could get it so completely, totally wrong. A top item on the congressional agenda when it comes back from recess should be hearings to take a long, hard look at how the ATSB has failed its mandate, particularly in turning down loan guarantees for United Airlines," said Capt. Duane Woerth, president of ALPA, which represents most pilots in the United States, including those at United.
In August 2001, United had more than 103,000 employees and operated some 2,400 daily flights. It had 1,800 flights with a workforce of 83,000 before filing for bankruptcy, the seventh largest in U.S. history.
The airline announced plans Dec. 3 to furlough 352 pilots early next year and said it would lay off another 1,000 flight attendants as it cuts flights 6 percent. United announced 9,000 job cuts last month and will have fewer than 74,000 employees worldwide in 2003.
Joel Goldhar, professor of technical management at the Illinois Institute of Technology's Stuart Business School, blamed United's bankruptcy on the decision by the board to leverage the airline's assets to provide a greater return to investors while the economy was robust.
"If you get too highly leveraged, you have no wiggle room," Goldhar said. "Stockholders whom you thought you were benefiting by stretching equity with a lot of debt have nothing and debt holders wind up with a lot of debt."
(Al Swanson contributed to this report.)