They Lost Their Giant?

United Airlines came a cropper in the second quarter this year, and its loss was a whopper.

Bankruptcy, while it keeps creditors at bay, still costs lots of money. Lawyers and consultants and the courts have to get paid; and they get paid first, as post-petition creditors, while the bondholders line the birdcage with their certificates, and the court churns on, keeping the dying patient alive, sopping up customers from otherwise-viable airlines.

Not management's fault.

Anyway, United announced that its second-quarter loss, some $623 million, was largely the result of all those expensive lawyers and consultants -- UAL attributed about $397 million of the loss to 'reorganization expenses.' The rest was just a regular hemorrage of cash.

It's not as though all the news was bad. Its loss last year, in the same period, was $341 million -- more than the non-reorganization loss this year. Thanks to United's unions and management actions, payroll is down 30%; and overall expenses have been reduced by over 17%.

The top line (revenue) was down 18%, though, because of the well-known things: war, SARS -- and a "fly three, get one free" incentive plan.

It could have been a lot worse. The government gave United $300 million of taxpayers' money, as war reparations...

UAL's Chief (right) explained, "The second quarter began as a severe challenge for United and the industry as a whole... Despite the continued difficult economic environment, the improvement in both revenue and cost is encouraging." Mr. Tilton's remarks didn't explain the 'improvement in revenue' part.

There is a possible glimmer of hope: in June, the company, after making the usual accounting adjustments, figured it had an operating profit of some $20 million. When the actual numbers all are added to the operation, though, that comes out the same as a $310 million loss.

UAL says it's staying within its creditors' committee guidelines for how much it can lose.

FMI: www.ual.com