United Air Lines

In the beginning of the 21st century United Air Lines faced major problems for their company success. In 2000, UAL machinist and pilots went on strike and demanded higher wages. The strike ended up costing US$ 700 million in cancellation and delays of flights plus in a new increase of employee’s wages.

The following year after the 9/11 attacks, everything went worse. The air traffic seemed to slow down, which affected the whole airline industry. Also, since both of two hijacked planes were UAL aircrafts their demand plummeted even more and losses were huge. This made it hard for UAL to pay back their debt that they had issued in the previous years. To overcome this crisis, UAL tried several options, but the circumstance forced UAL to file for bankruptcy protection: By having a recapitalization in 1994, where employees got a 55% equity stake in the company, the profitability increased a little; in 2000, machinists and pilots went on strike, which turned out to be very costly for the firm. The strike cost them in cancelled flights and delays 700US$ million and their costs went up when they agreed on increasing wages for pilots; 9/11 resulted in reduction in air traffic. Two of the hijacked planes were UAL aircrafts, so the demand for their tickets decreased.

The bankruptcy protection which has been filed by UAL since December 2002 gave the firm the possibility to try to re-structure the firm and sell assets. More precisely, it gave UAL the possibility to revoke aircraft leases, which made their economic burden much less. The firm can also try to find new financers and loans at a favorable price with the bankruptcy protection. So, chapter 11 is used as a liquidation method of assets as well as a re-structuring of the company and finding new financiers.

Because of the automatic stay, which protects the borrower’s assets from creditors outside of bankruptcy court, UAL don’t have to worry about being liquidated by creditors without having an