In a massive set of court filings, United Airlines on Wednesday proposed a reorganization plan that will help it exit a three-year stay in Chapter 11 bankruptcy.
United still faces a great deal of uncertainty, including record-high, volatile fuel costs and creditors who may challenge the plan. But if it is approved, the plan would help United exit bankruptcy as early as Feb. 1 and become profitable in 2006.
“After a long, dark night, the sun is rising at United,” said Tom Clark, executive vice president of the Metro Denver Economic Development Corp.
United has 58,500 employees, including about 5,400 in the Denver area. It is the largest carrier at Denver International Airport.
Under the reorganization plan, debtor-in-possession financiers – the banks that lend the company money while it is in bankruptcy – secured creditors and priority creditors would be paid in full.
Unsecured creditors would get 4 percent to 7 percent of their $20 billion to $30 billion in total claims, most of it in new UAL common stock.
Shareholders, as expected, would get nothing, and existing stock would be canceled.
New stock would be issued by the reorganized company. United shares closed at 64.5 cents Wednesday, down 50 percent from Tuesday’s close.
During its time in bankruptcy, United has significantly reduced its expenses by persuading employees to take massive pay cuts and sacrifice pension benefits. It also exacted creditor concessions and cut its workforce, flights and fleet of aircraft.
It also has repositioned itself by starting discount operation Ted and shifting to a greater share of international flying.
One of United’s remaining challenges is to convince creditors they will get more money if United is reorganized than if it is liquidated.
“We have used this time under the protection of the court to successfully restructure our company, and we are now competitive with the leading network carriers,” United chief executive Glenn Tilton told employees in a recorded message Wednesday.
“We will have to keep evolving to meet the demands of the marketplace that is changing every day. … The competitive pressure in our industry is not going to go away. In fact, I think it’s going to intensify, and we’re going to have to be ready for that.”
UAL Corp., United and 26 other subsidiaries filed for bankruptcy protection in December 2002. Along the way, United ran into problems that delayed its exit from bankruptcy, including failing to secure a crucial government-loan guarantee.
“Some of us thought it would never happen,” said aviation expert Darryl Jenkins. “It was a very long bankruptcy, but it was a very complicated one, too.”
United’s plan includes $2.5 billion in debt exit financing. It will use the money to repay debtors-in-possession financiers and make other payments, and to conduct operations after getting out of bankruptcy.
The company said it has secured commitments for debt financing from Citibank, JPMorgan Chase & Co., Deutsche Bank and GE Commercial Finance, and those financial institutions are competing to arrange the full $2.5 billion in financing.
United proposes to consolidate subsidiaries into the estate of United, which could affect some creditors, but not employees or customers, said chief financial officer Jake Brace.
The reorganization plan “is something the employees have been waiting for for some time,” said Ken Kyle, a Denver-based United flight attendant. “The details will determine creditor- committee support, creditor support and employee support, so it is a necessary step.”
Brace said no further significant changes to the flight network or employee base are expected, but the company will continue to look for opportunities to adjust.
“What this plan does is really continue to operate against the strategic direction that we set in place” earlier in the bankruptcy, Brace said. “The customer is going to see exactly what they see today.”
Staff writers Andy Vuong and Tom McGhee contributed to this report.
Staff writer Kelly Yamanouchi can be reached at 303-820-1488 or kyamanouchi@denverpost.com.
How United’s reorganization plan will affect fliers, employees and investors
Will there be any changes to United’s frequent-flier program, Mileage Plus?
United expects no changes to mileage programs or other customer programs.
Will Denver still be a hub for United?
United said it expects no changes to its hub structure and expects Denver to be a United hub for a long time.
Will there be further major cuts in flights or employees?
United’s chief financial officer, Jake Brace, said that no further significant changes to the flight network or employee base are expected but that the company will continue to look for opportunities to adjust.
What will happen to shareholders?
Current holders of UAL common stock will get nothing in United’s reorganization, and the stock will be canceled on the effective date of the reorganization plan. New stock will be issued.
Will United’s officers and board remain with the company?
Officers will continue in their positions after the reorganization plan takes effect. The board will be renamed.
