After 18 months of speculation and $4.5 billion in losses over the last two years, UAL ( UAL), parent of United Airlines, filed for Chapter 11 bankruptcy protection Monday morning. "We have begun the hard work of transforming our airline, and over the last several months have made progress in responding more effectively to changes in the marketplace and reducing the size of our airline to match demand," said Glenn F. Tilton, chairman, president and chief executive officer of UAL, in a statement. "However, at this stage, reorganization through Chapter 11 offers the best way to provide uninterrupted service to our customers around the world, safeguard the value of our businesses and assets, and, ultimately, emerge as a stronger, healthier and more competitive airline." The reorganization will not be a cakewalk. In the last 13 years, eight major carriers have filed for bankruptcy protection, including such long-lost names as Braniff, Eastern and TWA, but only Continental and America West have emerged from that process as viable companies. And so although United said it expects to have some kind of a reorganization plan in place soon, delivering on those promises can take months, even years. The bankruptcy filing is the largest in the history of commercial aviation, putting the nation's second-largest carrier in bankruptcy at the same time as US Airways, the nation's seventh-largest carrier. Judge Eugene Wedoff will hear UAL's case in the U.S. Bankruptcy Court in the Northern District of Illinois. The filing was all but inevitable after the Air Transportation Stabilization Board, which was created after Sept. 11 to help the industry recover, rejected the company's request for a $1.8 billion loan guarantee last week. Although United fought to secure $5.8 billion in cost cuts over the next five-and-a-half years from its labor unions, the ATSB rejected the company's proposal because it felt the cost cuts wouldn't be enough and that UAL's revenue projections were too optimistic.
Feeling the Pinch
Bankruptcy will certainly pinch UAL creditors like Boeing Capital, aircraft lending unit of Boeing ( BA); and UAL employees, who will likely lose their 55% ownership stake in the company. But the carrier stressed that customers will not lose out under restructuring, with United continuing to operate most of its flights while honoring frequent-flier miles and other customer perks.