UAL Still May Be Chapter 11-Bound
The selection of oil executive Glenn Tilton to head United Airlines drew guarded optimism Tuesday that he can quickly repair the beleaguered carrier, but some on Wall Street said United is still headed toward a bankruptcy filing.
Tilton starts today as chairman and chief executive of United and its parent, UAL Corp., and is expected to meet with leaders of its powerful labor unions this week. The nation’s second-largest airline, United is seeking huge cost cuts from its work force to help the carrier survive a pending cash shortage and the slump in air travel.
Union officials, meantime, are meeting today in Chicago to discuss the changes in United’s management, which also included the abrupt resignations of United’s president and chief operating officer. Both quit under pressure from the unions and to make way for Tilton’s own management team.
The unions, representing United’s pilots, mechanics, flight attendants and other ground workers, say they’re ready to work with Tilton on a recovery plan, but they’ve made no concessions as yet.
“United’s employees and unions have said for some time that a new CEO and new management was needed,” said Frank Larkin, a spokesman for the International Assn. of Machinists, which represents United’s mechanics. “Whether this is the team to revive the carrier to its former glory remains to be seen, but it’s certainly a step in the right direction.”
Investors also gave a modest lift to UAL’s battered stock after the Labor Day election of Tilton, formerly vice chairman of ChevronTexaco Corp. The stock edged up 7 cents to $2.94 a share on the New York Stock Exchange.
But one veteran airline analyst, James Higgins of Credit Suisse First Boston, issued a rare “sell” on the stock and said in a report to clients that “UAL’s management/labor relations are growing only more dysfunctional, the upheaval at the top is an ill-timed, near-term distraction, and time has run out for United to restructure itself outside of Chapter 11.”
Under Chapter 11 of the Bankruptcy Code, a company continues to operate but is protected from creditors while it works out a restructuring plan. But Chapter 11 also typically renders the company’s stock worthless, and UAL’s stock is 55%-owned by its employees.
United has applied for a $1.8-billion federal loan guarantee to shore up its balance sheet. But the agency overseeing the program, the Air Transportation Stabilization Board, is waiting for the airline to first lock in concessions from its workers, creditors and suppliers before it decides on whether to grant a guarantee.
Tilton succeeded interim CEO Jack Creighton, 70. Before he retired, Creighton told union leaders United needs $1.5 billion in annual labor-cost savings for six years. He also set a Sept. 16 deadline for the two sides to reach agreement and avoid a bankruptcy filing. With Tilton aboard, both of those items now are considered negotiable.
Tilton declined to comment. But in a taped message to employees, he said that “we have to make some difficult but critical decisions right away” and that “there’s only one way we can get this done, and that’s together.”
United spokesman Chris Brathwaite noted that Creighton had said he would leave “as soon as the right person was found. We have new leadership at the top, and that’s exactly what the unions have been looking for.”
Relations between United’s executives and unions have long been contentious. Management has said for more than a year that its work force must make deep concessions to lower United’s operating costs. But the unions blame many of the airline’s problems on poor senior management.
Some observers said Tilton, 54, is ideally suited to break the logjam. “He’s a consensus builder, which is a breath of fresh air in an industry with this much animosity” between management and labor, said Fadel Gheit, an oil analyst at Fahnestock & Co. who has followed Tilton’s career.
Plus, his lack of airline experience could be a blessing because “he is going to do things in a very unorthodox way--good, bad or indifferent,” Gheit said. His Texaco experience also means “he knows how to play before a huge audience and deal with large problems. And he comes to United with a very strong hand because he has already proven himself. He’s a guy coming in with nothing to lose.”
Associated Press was used in compiling this report.
