United Airlines Considers Radical Overhaul Amid Bankruptcy Proceedings

Strategic Insights -

United Airlines, the US carrier currently in bankruptcy protection, is planning a major overhaul of its business plan, which includes cutting 6,000 jobs and slashing millions of dollars from its annual operating costs. The airline needs to make deeper restructuring changes after the Airline Transportation Stabilisation Board rejected its application for a $1.6bn federal loan guarantee in June. United is now dependent on the capital markets for financing and has to present a new plan to the board by the end of this month.

Key Takeaways:

  • United Airlines is considering plans to cut an additional 6,000 jobs, which is 10% of its workforce, as part of a more radical overhaul of its business plan.
  • The airline is targeting a $3bn cash savings over the next four years by terminating its defined benefit pension plans.
  • United wants to slash at least another $655m in costs through productivity improvements and curbing non-labour costs.
  • The airline has already cut over $2.5bn from its cost structure since bankruptcy.
  • United is seeking to avoid relying on private equity groups for exit financing and wants the plan to be all debt-financed.
  • The airline has identified $600m of costs that can be cut immediately.
  • Management is trying to improve the relationship with the creditors committee to increase the chances of a successful plan.
  • United's workforce has already fallen from 104,000 before 2001 to 62,000 now.

Statistics:

  • United Airlines is planning to cut 6,000 jobs, which is 10% of its workforce.
  • The airline wants to save $3bn in cash over the next four years.
  • United has already cut over $2.5bn from its cost structure since bankruptcy.
  • The airline is targeting a further $655m in cost savings through productivity improvements and curbing non-labour costs.
  • United's workforce has fallen from 104,000 before 2001 to 62,000 now.
  • The airline has identified $600m of costs that can be cut immediately.
  • United's defined benefit pension plans are to be terminated.

Sources:

  • "United is finalizing details of a new plan that Glenn Tilton, chief executive, will take to the board for approval by the end of this month" (source not specified)
  • "The airline warned deeper restructuring was imminent" (bankruptcy filing not cited)
  • "The hard truth is that these proceedings have reached a critical crossroads at which poor decisions based on bygone paradigms cannot be afforded and tough ones can no longer be avoided" (bankruptcy filing not cited)
  • A person close to the plan said: "It is in the creditors' best interest that the plan is all debt financed so there is no dilution from private equity, and creditors will get more dollars for their claims" (source not specified)
  • An insider said: "In the last two to three weeks, for the first time since they filed for bankruptcy, there is a willingness to co-operate" (source not specified)
  • "UAL steps up pace, Page 25" (UAL not cited)