BBC NEWS
BBCi CATEGORIES   TV   RADIO   COMMUNICATE   WHERE I LIVE   INDEX    SEARCH 

BBC News UK Edition
 You are in: Business  
News Front Page
World
UK
England
N Ireland
Scotland
Wales
Politics
Business
Market Data
Your Money
E-Commerce
Economy
Companies
Fact Files
Entertainment
Science/Nature
Technology
Health
Education
-------------
Talking Point
-------------
Country Profiles
In Depth
-------------
Programmes
-------------
BBC Sport
BBC Weather
CBBC News
SERVICES
-------------
EDITIONS
Monday, 9 December, 2002, 17:32 GMT
Q&A: United Airlines bankruptcy
United Airlines, the biggest carrier in the United States, has filed for bankruptcy under Chapter 11. BBC News Online explains how this will affect travellers, shareholders and employees.

I've got a ticket for a United flight - will I still be able to travel?

Yes you will. United has promised to keep flying while it tries to sort its problems out.

Under the Chapter 11 bankruptcy proceedings, United Airlines is seeking the permission of the court to continue its existing operations while it attempts to restructure and pay its creditors.

Normally the court - and the creditors - will be keen to encourage the company to continue trading as normally.

That will maximise the repayments they could get for any debts they are owed.

In the longer term, there is a danger that United will have to scale down its operations, and may eventually go out of business.

However, Continental Airlines stayed in Chapter 11 bankruptcy for many years before emerging as a successful airline.

Why is United in trouble?

United Airlines is the biggest victim so far of the slump in airline travel that began with the terrorist acts of 11 September 2001.

Many people stopped flying, afraid that airlines might again be used as weapons of terror.

And flights by Americans abroad - the most profitable routes for United - were particularly hard-hit.

United was hit by its higher costs and generous wage structure, compared to its low-cost rivals.

And the US recession has meant that there has been a cutback in the profitable business travel section of the market.

Many companies now insist that their corporate executives fly economy or use low-cost competitors like Southwest.

What will happen now?

The courts will decide how United will restructure its operations, after consulting the banks and other organisations to whom United owes money.

They are likely to insist on cost-cutting measures, for example the scaling back of unprofitable flights and wage reductions for employees.

If the US economy improves next year, and business travel returns, then its prospects could improve.

Depending how long it takes for United to turn its $890m quarterly loss into a profit, it might emerge from bankruptcy, perhaps in a few years time.

What about the shareholders?

Shareholders are likely to be the main victims of the United Airlines bankruptcy.

Under corporate bankruptcy law, they have the last claim on the resources of the company, after other groups - like employees (for wages and pensions), creditors (like Boeing and jet fuel suppliers), and bondholders.

United shares have already fallen sharply as the news of their huge losses was made public.

Under bankruptcy they are likely to be virtually worthless, at least in the short-term.

And many employees own shares in the company - indeed 55% of the shares are held by United staff, including pilots and mechanics.

What about the employees?

The United workforce is also likely to be one of the main victims of the company's bankruptcy.

The courts are likely to demand even bigger concessions in wages and salaries than those already (painfully) negotiated in the last few months.

There may be job cuts as well, as unprofitable routes and businesses are sold off or discontinued.

And for many employees who owned shares, they will also find that their investment in United stock has become virtually worthless.

Airlines around the world are cutting staff after the terror attack

Bankruptcy for United

Other US airlines

Europe's troubles
Internet links:


The BBC is not responsible for the content of external internet sites

Links to more Business stories are at the foot of the page.


E-mail this story to a friend

Links to more Business stories

© BBC ^^ Back to top

News Front Page | World | UK | England | N Ireland | Scotland | Wales |
Politics | Business | Entertainment | Science/Nature | Technology |
Health | Education | Talking Point | Country Profiles | In Depth |
Programmes