United seems headed for bankruptcy

Financial Times ^ | October 15 2002 | By Caroline Daniel in Chicago

[GaltMeister]

A year ago this week Jim Goodwin, the former chief executive of United Airlines, wrote a letter to employees warning that "we are in nothing less than a fight for our life".

"Clearly this bleeding has to be stopped - and soon - or United will perish sometime next year," he said. The thanks he got for this letter was to be marched swiftly out of the company.

The message outraged union leaders, who dubbed it the "Chicken Little letter" for its alarmist tone, and caused UAL's stock price to drop 10 per cent to about $17 at the time.

Looking back, Mr Goodwin could be forgiven for feeling an element of Schadenfreude. While wrong about the timing of United's meltdown, the rest of his critique has proved spot on. United's shares have since plunged to $1.72, valuing the 76-year-old company at $98m, one-fourteenth the size of Jet Blue, an airline start-up founded three years ago.

Unfortunately for United, some employees, who hold 55 per cent of the company, remain unwilling to embrace financial reality. Last week, after a period of lengthy talks on wage cuts as part of a coalition of United's unions, the International Association of Machinists broke away and said it would negotiate any deal separately.

-- Excerpted -- click to read entire article

[GaltMeister]

Quote - Its management is already hamstrung by its ownership structure, which grants two board seats to the unions and limits its ability to restructure and gain access to capital markets.

Quite a problem - the unions running the company, looking only to their own interest while the company (their livelyhood) goes down in flames.

[SamAdams76]

I think the major airlines going bankrupt will be a good thing for the U.S. economy in the long run. New companies will form and acquire assets of the major airlines for a song and start fresh, dumping the unions once and for all and focusing on customer service instead of worrying about the next pilots strike or baggage handlers strike. When baggage handlers make four times as much as stewardesses, something is wrong with the system. Wages are artificially out of scale due to the unions. Everybody should be able to make a decent living in the airline industry. When stewardesses are paid $16,000 a year so that the airlines can afford to pay union scale of $28.32 an hour for somebody to toss baggage onto a conveyor belt, something is seriously wrong and out of whack.

[cynicom]

What does a senior 747 captain make now, $300,000???

[The Other Harry]

I think there may be some lesson in here about highly-leveraged (deeply indebted) businesses -- especially those which are reliant on union contracts.

It was not so long ago that United and Delta were considered to be the premier air carriers.

[E. Pluribus Unum]

Maybe if they hadn't turned airports into POW camps people would still be flying.

[BIGZ]

The ultimate oxymoron, the employees ( union ) own the co.

You can have a company without a union but you cant have a union without a co.

They never learn.

[goldstategop]

UAL is an employee-owned company. Can they fire themselves? Now that's an interesting question.

[DmBarch]

UAL is an employee-owned company. Can they fire themselves? Now that's an interesting question.

They are going to, in a way. Resistance to the reality of the situation had lead to the union rallying cry - "Full pay to the last day!!!"

Somehow I own $2,000 face of 9% United bonds, Due 12/03. Right now the market has them going for twenty cents on the dollar. At this rate we'll get zero.