United Airlines files for bankruptcy

Key Facts -
United Airlines

During the past year the cash-strapped airline axed thousands of jobs to stay afloat. It had been expected to file for bankruptcy ever since last-ditch attempts to secure an emergency loan from the government fell through last week.

"We took the decision to do today what is right for the company now," UAL chairman and chief executive Glenn Tilton said.

Investors immediately marked down the company's shares price, which dropped nearly 12% to $0.82 in early trading. In March this year, UAL shares traded at $17.90.

UAL's corporate failure comes after last year's 11 September attacks and the general economic slowdown triggered a sharp drop in passenger numbers, putting its finances under severe pressure.

Normal service

The company landed a deal with its lenders, including CIT Group, JP Morgan Chase, Citibank and Bank One, which will provide the $1.5bn required to keep the company flying while a restructuring takes place. The company also has about $800m in cash.

Normal passenger services will not be affected.

"We're going to be flying planes today, tomorrow, next week, and next year. The passengers shouldn't notice any difference," a spokesman for UAL's pilots' union said.

The financing deal follows the rejection of UAL's application for a $1.8bn (£1.15bn) loan from the Air Transport Stabilization Board (ATSB), set up to help US airlines in the wake of the 11 September attacks.

However, the firm's collapse is likely to leave its shareholders nursing hefty losses.

These include UAL's own staff, who own about 55% of the company.

And any restructuring exercise is likely to lead to job losses, on top of the 20,000 lay-offs announced in the aftermath of 11 September.

UAL has already been seeking wage and benefit concessions from its staff in a bid to reduce its costs and mounting debt pile.

The firm has a history of troubled industrial relations, and has to cope with higher costs than most of its competitors.

Rising debts

United chronology

UAL lost $2.1bn last year and is expected to lose $2.5bn this year.

It has $920m in debt repayments due in the next week.

Last week, the group's shares lost over two-thirds of their value following news of the loan rejection, ending the week at just 93 cents.

The bankruptcy is the second failure in the US airline sector this year after US Airways - once seen as a merger partner for United - filed for bankruptcy protection in August.

In Europe, the post 11-September dip in passenger numbers contributed to the collapse last year of Swiss national carrier Swissair, and its Belgian subsidiary Sabena.