UAL Reorganization Plan Approved

As part of his ruling, the Bankruptcy Court judge okayed a compensation package for 400 top managers that consists of about 8 percent of the airlin...
Stephen TaubJanuary 20, 2006

UAL Corp., the parent of United Airlines, is finally lifting off from bankruptcy. After three years in Chapter 11, the U.S. Bankruptcy Court has approved its reorganization plan.

Under the agreement, current UAL common stock, preferred stock, and ToPRS (trust originated preferred securities) will be canceled, and no distribution will be made to holders of those securities. At some point after the company’s emergence, which it expects will occur in February, it will issue new shares.

United has said it has secured $3 billion in exit financing to be provided by JPMorgan, Citigroup, and GE Capital. The company said it would use the financing to repay its debtor-in-possession (DIP) facility, to make other payments required upon exiting from bankruptcy, and to ensure strong cash balances to conduct postreorganization operations.

Before approving the plan, Judge Eugene Wedoff said, “If there’s not a feeling of exaltation in this room, perhaps there can be a feeling of relief,” according to Reuters.

In an attempt to compete with low-cost airlines and previously shaky ones that have restructured, United has sliced its workforce by one-quarter and slashed costs by $7 billion, the wire service reported. “We have a competitive cost structure,” UAL CFO Jake Brace reportedly said. “It was a complex restructuring. It was as difficult as we expected it to be and then some.”

As part of his ruling, Wedoff approved a compensation package for 400 top managers that consists of about 8 percent of UAL’s new shares, according to the Associated Press.

The stock package has angered workers’ groups that argue that it’s out of line given the extensive wage and benefit reductions employees have received in the past three years, according to Reuters. For their part, UAL officials reportedly have contended that tying management compensation to stock performance ensures solid leadership.

Airline consultant Michael Roach told the wire service that UAL still hasn’t done enough to cut costs. “They are coming out with costs too high,” he said. “They are going after the premium customer, and they believe they can get it. If they don’t get the revenue, they are in deep trouble.”

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