Tuesday October 02 02:55 PM EDT

UAL Buying Luxury Jets Amid Job Cuts

By LAURENCE ZUCKERMAN The New York Times

While United was saying that it might go bankrupt without a bailout, its parent, the UAL Corporation (UAL - news), was making a $11.25 million down payment for 30 business jets.

At the same time United Airlines was telling Congress two weeks ago that it might go bankrupt without a bailout, its parent, the UAL Corporation, was wiring $11.25 million to a French airplane manufacturer as a down payment on an order for 30 business jets.

The luxury jets, built by Dassault Aviation at a cost of about $20 million apiece, are part of a new business for UAL, that of selling shares of business aircraft to corporations, celebrities and other wealthy individuals.

The plan calls for United to buy fleets of eight different types of business jets, including those made by American manufacturers, at a cost of $7 million to $40 million each over the next five years and resell shares in them at a profit while earning management fees for flying and maintaining the aircraft.

But critics, including lawmakers in Washington, are angry that United is investing millions of dollars in the new venture when it has announced plans to lay off 20,000 workers and supposedly is fighting for its life. The airline has already received about half of the $802 million that is its share of a $5 billion cash grant to the industry passed by Congress on Sept. 21. United and other carriers are also eligible for $10 billion in federal loan guarantees.

"It's outrageous," said Representative Peter A. DeFazio, a Democrat from Oregon and a member of the House Aviation Subcommittee. "On the one hand they say they need an immediate cash infusion from the government, no strings attached, and on the other they are wiring money to France." Mr. DeFazio said he would seek to add conditions to the loan guarantees, including a requirement that airlines could purchase only American-built planes.

Unions representing United employees who are the majority owners of the airline through an employee stock plan were equally upset. "They ought to put it on the back burner so far that it falls off the stove," said Thomas Buffenbarger, the president of the International Association of Machinists, which represents 44,000 United workers and has a seat on the UAL board. "We are trying to build an airline that serves the commercial public. This serves a very few people."

United first announced its intention to operate and sell private jets in May. It was planning to unveil the operation's name, Avolar which is based on the Latin verb meaning to fly on Sept. 17, but the announcement was postponed after the terrorist attacks, which involved two United passenger jets.

Stuart Oran, the United executive in charge of the new business, said in an interview that the company had already invested $70 to $80 million in the venture, which has been under development for more than two years. "So any inference that any of the money that the government is giving has anything to do with this business is off base," he said.

"We have wired a lot of money to a lot of people," he added, including an unspecified sum for up to 35 jets from the Gulfstream Aerospace unit of the General Dynamics Corporation. "This is an integral part of our business. We pay tens of millions dollars in bills every day. This is another bill."

But Mr. Oran, a former Wall Street lawyer who has worked at United since the mid-1990's, said that in the aftermath of the attacks the airline had decided to try to sell stakes in Avolar to outside investors so that it would not have to lay out any more cash to finance it.

Business jets have become more popular with corporations in recent years as congestion and hub airports have made it difficult and time-consuming to visit secondary cities around the country. No longer the exclusive perk of the chief executive, private jets are increasingly used by middle managers.

Experts predict that last month's attacks will give sales a lift because of increased concerns over security. Still, for the most part, customers for private jets remain an elite clientele. For example, the smallest share at the NetJets program of Executive Jets costs $500,000 a year for 50 hours of flying. Executive Jets, the market leader, is owned by Berkshire Hathaway, the investment company run by Warren E. Buffett.

Mr. Oran promises that Avolar will pamper its customers with the same level of service found at the world's most exclusive resorts. Its "senior vice president of customer experience," who was hired from the high-toned Ritz-Carlton hotel chain, is scheduled to report for work next week.

In addition to selling shares of planes, United plans to offer a portfolio of services, including managing corporate fleets, flying charters and operating corporate shuttles. And it has said that it can combine private jet service with United's international flights to woo corporate clients into signing exclusive contracts for all their flying needs.

"The construction of this business was something that we viewed as a big win-win for everybody," Mr. Oran said, referring to the airline.

But many wonder if United can make Avolar a success. Mr. Oran says that United has already created a tremendous amount of value in the venture but Avolar has yet to sell a single share. It will take delivery of the first jets in which it is selling time shares in April but will start offering interim service to some customers with two older jets beginning Nov. 1.

In addition to Executive Jets, there are several other large companies, including Bombardier Aerospace and Raytheon, that sell shares in private jets that they also manufacture. "I have some real questions whether United can do this at competitive cost levels," said Michael E. Levine, a former airline executive and regulator.

United management has also had a spotty record running its own business. UAL lost $605 million in the first half of this year, far more than any of its competitors, and was on its way to losing nearly $1 billion for the year even before the terrorist attacks.

"Considering the inherent strength of United's route network, its losses are inexcusable and staggering," said Samuel C. Buttrick, an airline analyst at UBS Warburg in New York.

Avolar has also alienated many of United's 100,000 employees. In a June interview at the Paris Air Show, Mr. Oran stressed that the venture was entirely separate from the airline and would draw its workers from outside the airline industry. "This business is not United," he said.

But with thousands of United employees losing their jobs, he said he was offering positions to some United workers but could accommodate only a small number. Still, many of Avolar's managers come from outside and earn high salaries.

"People are disgusted," said one United manager who insisted on anonymity.

Industry experts said that it would have been relatively easy for United to back out of its commitment to Dassault, especially after Sept. 11. Indeed, many airlines are canceling much firmer orders for commercial jets from Boeing and Airbus Industrie. Since there is a waiting list in some cases for new business jets, Dassault could also have delayed United's order.

There is a chance that taxpayers could benefit from both United's and Avolar's success. The bailout legislation passed by Congress gave the government a right to profit from an increase in the company's share price as a condition of the federally backed loans. A similar condition in the Chrysler bailout two decades ago produced a $311 million profit for the government.

But the newly formed Air Transport Stabilization Board, which is headed by the Federal Reserve Board chairman, Alan Greenspan, has not yet decided on the terms of the loans.

-- (told@you.so), October 06, 2001

Answers

You have no business to question Der Furhrer. Heil, Dubya!

-- Frauline Bush (Inder@bunker.com), October 06, 2001.

Hell, I am having fun with you money!! Whatcha gonna do 'bout it, punk?

-- Gary (gcphelps@yahoo.com), October 06, 2001.

Me too, but I'm running low on the cash flow so could you send me some 'mo?

-- There ain't no jimmy on the low low (j@lo.married), October 06, 2001.

Saturday October 06 03:00 AM EDT

The Air War

By Bill O'Reilly

It is time for corporations to step up and serve America, and not themselves. Yeah, the stock market is down, and we're in a recession. Profits are falling, and the bottom line is being drawn on the floor. But let's take a few quarters for the home team, all right? Let's put the country first for a few months and stop bean-counting like crazed Scrooges. The better corporate America can treat the citizenry, the fewer victories the terrorists will chalk up.

The airline situation is a good example. The Bush administration handed the airlines $15 billion in taxpayer aide and asked nothing in return. Huge mistake, colossal blunder. Most of the airlines have cut personnel resulting in long, tedious lines at the ticket counters and security stations. Wouldn't it have been better for the airlines to negotiate a temporary cut in pay and keep everybody working? Maybe the unions would have objected, but maybe not. Instead we are seeing chaos at some airports and the continued abuse of the American flier. No customer should have to wait hours to get on a plane.

My experience at Kennedy Airport in New York is typical. I was trying to get to Dallas on a Sunday night. The plane was half full since many Americans are still afraid to fly. Very few ticket agents were working, and the lines moved like Los Angeles traffic. And then, things got worse. The lines to pass through security were more than an hour long. Why? Because American Airlines had failed to schedule extra security people, and the ones working were frisking nearly everyone. I mean 80-year-old women in orange tracksuits had their hands over their heads. It was unbelievable chaos. My plane left almost two-and-a-half hours late.

Now I'm not whining about this, I am genuinely teed off. I realize air security has to be tightened, but I also believe that some airlines are squeezing a few more bucks in profit by not hiring enough security people. And the folks being punished by this squeezing are the very taxpayers that provided the free federal money the airlines got in the first place.

The next day, I returned to New York. But things were very different at the Dallas-Fort Worth Airport. There were plenty of American Airlines people working, and all the lines moved quickly and efficiently. The 80-year-old women in cowboy boots who were frisked were all moved over to the side so those in back of them could proceed. DFW personnel were organized. That made me even madder at the Kennedy people.

Corporate America has to get on the team and on the beam. We are all in this together, and big business has to help out. The president of Starbucks recently had to apologize because a Starbucks store near the World Trade Center actually charged rescue workers for water! Starbucks reimbursed the workers, but I hope the company fired the morons who water gouged in a life-death situation.

And listen to this: The Peak Organization, a job placement firm in Manhattan, laid off a woman named Carrie Gallagher shortly after the attack on The World Trade Center. Are you ready? Ms. Gallagher's husband Tony was killed in the disaster. Can you believe it? The president of the Peak Organization told The New York Times that he feels "bad" for Carrie.

I am on a mission to publicize bad behavior by corporations in America's time of need. I resent the fact that some greedy Americans are short-selling the stock market. I don't like reading about massive layoffs by companies that have huge reserves of cash. U.S. Airways, for example, laid off thousands while its CEO is being paid millions. Hey, pal, take a cut, OK?

The bottom line in the next few months should not be about money. It should be about what's best for the country. We are at war, and everybody, including the Fortune 500, should make sacrifices. Keep a close eye on who is doing what to whom. Don't let companies get away with treating you unfairly.

By the way, the people at Kennedy Airport who had to wait in line for hours did so without raising a ruckus. It was almost a miracle. New York is the complaint capital of the world, yet everybody suffered in silence.

The everyday folks know what is going on, and they know what's at stake for America. It's time for the corporate types to wise up as well.

-- (Tough Billy @ Tells it. Like it is!), October 07, 2001.