United Airlines: O'Hare Today, Gone Tomorrow

Liquidating the carrier is the only way to fix its uniquely embedded problems

by Roben Farzad

Browse Issues

Browse the BusinessWeek Archive

Ground crews at Chicago's O'Hare International Airport prepare a United 757 for a flight in this June 2008 photo. Justin Bachman

Story Tools

• post a comment
• e-mail this story
• print this story
• order a reprint
• suggest a story
• digg this
• save to del.icio.us

Scott Menchin

In a recent episode of United Airlines' (UAUA) sad saga, a surreal company press release promised to "take actions to protect customers" (and, for what it's worth, other employees) from certain United pilots, who in July were staging a work slowdown. Cue Gershwin, and come fly the friendly skies.

True, all airlines are getting slammed by high jet-fuel costs, airport congestion, and an inability to charge enough for tickets. But 80-year-old United seems uniquely, almost perennially, vexed, having just posted a $2.7 billion quarterly loss (more than Delta (DAL), American (AMR), and Continental (CAL) combined) on top of the billions more it has hemorrhaged since 2000. It would be hard to find another major airline taking such body blows from every direction. Or one so chronically incapable of preparing in the rare good times for the inevitable bad times.

Will the torture ever end? Only if United does. Travelers and the beleaguered air-transport system would be better served by United's creative destruction: Liquidate it and let stronger hands manage the pieces. As painful as it might sound, industry precedent and business logic almost demand it. United spokeswoman Jean Medina calls this "an absurd conclusion," citing the airline's "strong liquidity position" and free cash flow.

Lost Years

United, you might recall, very nearly flatlined in the wake of September 11, when it lost two of its planes. A little more than a year later, after the government refused its request for a loan guarantee, the airline succumbed to a Chapter 11 bankruptcy that became the longest in aviation history, spanning December 2002 to February 2006. In the process the carrier cut routes and slashed its payroll; launched Ted, a low-cost carrier of low success; and staged the largest pension default in U.S. history. For good measure, United managed to ring up $335 million in attorney and consultant fees.

The long pause didn't exactly refresh. In the 2½ years since United emerged from Chapter 11, its stock has fallen 75%. At one point last month, United's market value matched the above-mentioned legal bill. Alas, management's post-bankruptcy plan counted on oil averaging $50 a barrel, even though it was already at $65 at the beginning of 2006. The ensuing super spike went on to essentially cancel out United's cost savings.

But even if the airline devised a way to run its 767s on oil from all the peanuts it has wrested from passengers, the institution seems almost culturally incapable of banking a profit.