United eliminates some of its routes

United Airlines, battling to avoid bankruptcy, announced plans Wednesday to stop flying to four cities in Europe and South America and strengthened its application to the US government for an urgently needed US$1.8 billion federal loan guarantee.

The latest steps in its financial recovery effort came as United continued negotiating with its unions on the most critical element of its emergency overhaul plan: US$5.8 billion in labor cost reductions.

In its second round of cost cuts this week, United said it would stop flying in January to Caracas, Venezuela; Santiago, Chile; Dusseldorf, Germany; and Milan, Italy, and switch to smaller aircraft on seven overseas routes.

The international cost-cutting will result in a combined 229 layoffs in those four cities and save an estimated US$120 million annually, on top of US$100 million in savings from US-based reductions announced Monday, which included 1,250 job cuts.

United said the moves will affect 69 employees in Caracas, 110 in Santiago, 46 in Milan and four in Dusseldorf. Its last flights will depart Dusseldorf, Caracas and Santiago on Jan. 6, 2003, and Milan on Jan. 21.

"Closing a station is always an extremely difficult decision to make, but given the unprecedented challenges the global airline industry faces, these closings are an essential and prudent course of action," United CEO Glenn Tilton said. "These measures are unfortunately necessary given the continued deterioration of profitability in these four international markets."

The government filing drastically increases the cost-saving measures envisioned by the nation's No. 2 carrier beyond those outlined in its application in June, including an additional 12 percent reduction in capacity for 2003. Key elements of the plan had been announced previously.

United said it submitted the updated business plan Tuesday night to the Air Transportation Stabilization Board, which had signaled the earlier proposal was insufficient to receive the asked-for US$1.8 billion loan guarantee.

It comes with United desperately seeking financial help and looking to restructure after reporting an US$889 million quarterly loss last week. The airline, which had US$1.66 billion in unrestricted cash at the end of September, faces US$875 million in debt payments by Dec. 2 and has been burning through cash at a worsening rate that averaged US$7 million a day in the third quarter.

Shares in United parent UAL Corp rallied on the announcement of the government filing and closed up US$0.24, or 11 percent, to US$2.34 on the New York Stock Exchange.

Airline analyst Ray Neidl of Blaylock & Partners said the package of cost cuts should be sufficient to keep the carrier from filing for Chapter 11 bankruptcy, provided the labor concessions gain final approval by its unions. Whether the three-man federal panel overseeing the loan guarantee process will approve remains in doubt, he said.

"The question is, is that enough dollars for the board to grant them the loan," he said. "The board is very conscious of protecting taxpayers' money, so I expect them to be put through the wringer."

United senior vice president Graham Atkinson said the four cities where it is halting flights have shown results ``well below United's profitability hurdles'' over several years.

As part of the latest reductions, the airline will now fly Boeing 767s instead of 777s in the Paris-Washington, Paris-San Francisco and Miami-Buenos Aires markets, and will replace 747s with 777s on the Osaka-San Francisco route, its second daily Seoul-Tokyo flight and its second Tokyo-Chicago flight.