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Last June, as United Airlines' proposed purchase of US Airways (U) fell apart, I put United, a unit of UAL (UAL), on my Titanic List at PlaneBusiness. This low honor is reserved for companies I believe pose a serious risk to investors.
Notwithstanding the debacle of the failing deal, my reasoning was this: United was unfocused in terms of its core business strategy, operations were pitifully inconsistent, confidence in the airline's executive management by those in the middle ranks had eroded, and revenue was falling while expenses continued to expand. On top of that, United had signed a pilots' union contract it could not afford, given its earnings at the time. Kind of like the old, "Oh, I really can't afford this now, but I'm sure by next year I will be able to swing it" mentality that puts just-graduated college students into deep debt in no time flat. But this was no freshly minted naive college student. As I said then, never before had I seen such a rapid and total financial collapse of an airline that two years ago had seemed to be the model of success. My point? The seeds of this meltdown were there long before the events of Sept. 11 left aircraft grounded and chilled enthusiasm for flying. Late Tuesday, United's sad story took another embarrassing turn as news leaked out about a letter that CEO Jim Goodwin had written to employees -- but not yet distributed. Sight unseen, news of the letter sent Wall Street into a panic, as investors pushed shares of UAL down 10% on Wednesday. I obtained a copy of the letter that was ultimately sent to employees late Wednesday, and you can read it by clicking here. Was this merely a "Chicken Little" letter, written to justify desperate cost-cutting and contract changes, as the airline tries to avoid the shark-infested waters of bankruptcy?TheStreet Premium Services
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