Judge denies ACA / UAL Ruling

[Rottweiller]

Dow Jones Business News
UAL Mulls Hub Closures in Reorganization
Monday February 24, 7:55 pm ET
By Erik Ahlberg


CHICAGO -- An executive for UAL Corp. (NYSE:UAL - News) said Monday that the airline is mulling the closure of its hubs in Los Angeles, Denver and Washington as part of its reorganization plan.

Senior Vice President Gregory T. Taylor said in court testimony that UAL, parent of United Airlines, was asked by its board of directors to consider the hub closures as an alternative. The board also asked the company to look into the possible sale of the airline's Pacific operations, he said.

Separately, the judge overseeing UAL's bankruptcy case here denied Atlantic Coast Airlines Holdings Inc.'s (ACAI) motion to force UAL to assume or reject a contract between the two companies.

Atlantic Coast, of Dulles, Va., provides regional airline service for UAL under the United Express brand. United Express generates about 85% of Atlantic Coast's revenue.

Among other things, the contract calls for Atlantic Coast to add 47 regional jets and retire 30 older turboprop planes by April 2004 at a total cost of $940 million.

Attorneys for Atlantic Coast said that such capital spending, particularly without any assurances from United, put an undue financial burden on the company.

But attorneys for UAL said that the company shouldn't have to make any decisions about the Atlantic Coast contract because of the evolving nature of the reorganization plan.

In his ruling, Judge Eugene R. Wedoff said that United's need to keep its reorganization free of any early obligations was greater than Atlantic Coast's need to have answers about the contract. He said that Atlantic Coast still has a number of options, including negotiating new terms with the planes' manufacturer, Bombardier Inc. (BBD.B)

In court testimony, Atlantic Coast Chief Financial Officer Richard J. Surratt said the uncertainty surrounding UAL could make it difficult to obtain outside financing for the new planes.

Though the company has one of the best balance sheets in the industry with $ 189 million in cash and $44 million in deposits, that position could be threatened by the burden of the upgrades, he said.

He declined to comment on the judge's ruling after the hearing.

UAL's Taylor said UAL's reorganization plan is still very much in the formative stages. The company continues to evaluate several options in addition to the creation of a new, low-cost airline, he said.

-By Erik Ahlberg; Dow Jones Newswires; 312-750-4141; [email protected]

 

[General Lee]

Closing the LAX base and DEN base could affect Skywest, and closing the IAD base could affect ACA. This might be the impetus to get Skywest to start it's own flying---with 737's or 717's. ACA could still codeshare for UAL out of ORD, but Mesa or Chit-talk might low bid them. It is interesting that the UAL board is actively discussing this in the media. Is this their plan if they re-emerge after chap 11? So, either way---if they do or they don't---has DEN lost UAL? I did hear that Continental is looking for a reason to go to DEN and leave their underused hub at CLE. It will be interesting.


Bye Bye----General Lee

 

[spinup]

I find little credibility in the reported closure of hubs. UAL will surely close some in BK, but as of right now not those. One of the major strengths of UAL is their route structure, Tilton has stated numerous times that management’s main drive is to keep that in tact. Reported recently in Rocky Mountain news, UAL plans significant expansion at DIA to include UAX, and LCC. A lot of things are on the table right now, and the media has never been UAL's friend.

As a side note regarding CAL in DIA, Gordo has made no friends within the ranks at UAL with his public comments. There is widespread resentment. Employees drove CAL out of DEN with their TORQUE campaign before, and wont take Gordo's actions lying down.

It is easy to jump to conclusions, but things are still developing. I for one hope that ACA and Skywest hang with UAL through this bumpy ride, they are a known quantity and have provided professional, reliable service throughout. It is hard for employees to take, but their livelihood is largely tied to mainline productivity. I don't see either becoming a large independent player (737's). Competition for any UAL routes made available by BK collateral damage would most likely go to other trunk carriers, then further supported by the regional airlines.