United Airlines to come out of bankruptcy on 1 February

United Airlines to come out of bankruptcy on 1 February

	Published : Sun, 22 Jan 2006 08:10 By : Amy Watts Print this Story

CHICAGO: A federal judge in the U.S. gave his approval Friday to a revamping plan for United Airlines, paving the way for the company to come out of bankruptcy. Judge Eugene R. Wedoff of Chicago's Federal Bankruptcy Court gave his ruling after some objections to the airline's restructuring plans were sorted out. The company will be out of Chapter 11 on 1 February thus ending one of the longest airline bankruptcies in history.

Judge Wedoff said there is reason to be hopeful about the company's restructuring, adding it now has the potential to be a profitable investment, a reliable business partner and a stable employer.

United Airlines, a part of the UAL Corporation, is the No 2 airline in the country after American Airlines. It did not cease operations during bankruptcy. As part of the restructuring, which was under way since 2002, the company had cut $7 billion in annual costs, including two rounds of paycuts for the staff, eliminated some 25,000 jobs and abolished its defined-benefit pensions, apart from reducing its fleet strength by 100 airplanes and rationalising its routes.

The airline has earmarked $400 million for capital improvements like additional check-in kiosks, better airplane interiors and upgraded computer systems and ground equipment.

One of the contentious issues in the company's restructuring plan has been the replacement of the traditional pension plan with a 401(k)-style accounts. This was objected by sections of the staff and after prolonged negotiations, the issue was resolved earlier this week. The other issue related to a equity compensation plan for top managers. The company's creditors and trade unions had opposed the scheme, but the federal court intervened in the matter and approved a proposal to grant an estimated $115 million in equity to some executives.

The company had reported a doubling in its first quarter losses to $1.1 billion in May 2005, compared to a loss of $459 million in the previous year. When it leaves bankruptcy, the company's existing stocks will be terminated and new shares will be issued. Its unsecured creditors are expected to receive 4 cents to 8 cents on a dollar.

Two of United Airlines rivals, Delta Airlines and Northwest, are operating under bankruptcy protection, while U.S. Airways had come out of it in September last.