UAL Emerges from Bankruptcy

Chairman, chief executive officer, and president Glenn Tilton says the industry would benefit from consolidation.
Stephen TaubFebruary 1, 2006

UAL Corp., the parent of United Airlines, has finally lifted off from three years of bankruptcy. The company, which has cut its average annual costs by about $7 billion, is a vastly shrunken version of its former self.

“Today, we have the business platform we need to compete with the strongest carriers and a clear strategy of offering the right service to the right customer at the right price,” said chairman, chief executive officer, and president Glenn Tilton, in a statement.

Shares of the newly reorganized UAL began trading on Wednesday and will be listed on Nasdaq on Thursday.

The company, whose exit financing was provided through a syndication led by JPMorganChase and Citigroup Global Markets, received offers of subscription for more than twice the capital necessary to support the $3 billion it sought. UAL noted that it was able to reduce its financing cost by 75 basis points, to 375 basis points over Libor. The financing consists of a $2.8 billion term loan and a $200 million revolving credit line.

The airline industry continues to be a commodity business. Most customers make their purchase decisions largely on price, and to help airlines keep their costs as low as possible, many industry veterans are calling for widespread consolidation. Ironically, one way to speed up consolidation is for bankruptcy courts not to tolerate protracted proceedings such as those that enabled United to remain in business under Chapter 11 protection.

“I do think the market would benefit from consolidation,” Tilton told Reuters. In an interview with the Associated Press, he said: “I think the story of this restructuring when it’s written will have one word, and that’s consensual. The real story of this bankruptcy, as much as what happened, is what didn’t happen. No strikes, no litigation, two rounds of consensual agreements, a consensual deal with the PBGC (Pension Benefit Guaranty Corp.) and replacement pensions consensually negotiated with all labor groups.”

On that note, The Wall Street Journal reported that the PBGC will soon unload about half of its 20 percent stake in the company. The federal insurer of private pension plans became an unsecured creditor and UAL’s largest shareholder after the company offloaded $10.2 billion in unfunded pension liabilities during its reorganization. The sale will proceed so quickly, the agency reportedly added, because the PBGC does not believe it should take an active role in corporate management or governance.