United expects tough times after feds refuse assistance

CHICAGO — Employees at United Airlines are bracing for the prospect of more sacrifices after the carrier’s nearly two-year quest for federal assistance failed.

Further cuts in United’s bankruptcy restructuring would be especially painful for a work force already hit by heavy wage and benefit reductions that enabled the company to reduce annual labor costs by $2.5 billion annually.

Experts say they may be inevitable, though, as United scrambles to redo its finances after being rejected for a third and final time Monday in its attempt to secure a government loan guarantee.

Chief executive Glenn Tilton hasn’t outlined the possible cuts yet and is appealing to employees to keep cooperating in the lengthy effort to pull United out of bankruptcy.

“We’re going to continue to work together to complete our restructuring and exit Chapter 11 a strong and a competitive and a viable and a sustainable airline for the long pull,” Tilton said in a recorded message to employees Monday night. He thanked them for their efforts over the “very difficult” past 18 months. “We’ve earned respect, we have earned credibility in the marketplace,” he said.

Tilton said he was confident that potential investors and lenders “will see the upside opportunity that United now offers.”

Among the areas likeliest to be targeted by management to make the company more attractive to outside investors is employee pensions, particularly since United must make at least $4 billion in pension payments through 2008.

Speculation on cuts also extends to United’s Asia routes and the size of its work force, which already is down to 62,500 from 100,000 before the 2001 terrorist attacks.

“They’re going to have do some things that are very unpleasant, including getting rid of a few people,” said industry consultant Darryl Jenkins, professor of airline management at Embry Riddle Aeronautical University in Daytona Beach, Fla.

“This won’t be a happy year for employees,” he said. “Not so much pay (cuts), but additional work rules, pilots’ stock that they were going to get in exchange for concessions, and pensions — they’ll all be on the table now.”

United isn’t discussing specifics of its options publicly. But even before the Air Transportation Stabilization Board dismissed its loan-guarantee efforts for a final time Monday, Tilton cautioned employees last week that more cuts would be needed to cope with increased competitive pressures and high fuel costs.

“In order to attract a new equity investor and providers of credit, the airline will very likely have to undertake further cost cuts and demand further reductions in its debt and lease obligations,” Standard and Poor’s analyst Philip Baggaley wrote in a research note Monday. United’s ability to attract new investment, he said, will depend partly on its success in further restructuring.