U.S. ECONOMIC/FINANCIAL NEWS
United Files for Bankruptcy; Demands Immediate Pay Cuts from Employees
United Airlines (UAL) filed for bankruptcy Dec. 9, calling it "the best means to facilitate the implementation of the necessary changes into the business to bring costs and operations in line with the new business environment, and get access to new capital not otherwise available through Debtor-in-Possession (DIP) financing." The $1.5 billion in DIP financing includes $300 million from Bank One, and a $1.2-billion package from a group led by JP Morgan and Citibank, and which includes CIT Group and Bank One. Access to $700 million of the $1.2-billion facility is subject to United's achieving "performance milestones under its business plan."
The first such milestone announced, was that all officers' pay would be cut by 11%, and all salaried employees' pay would be reduced by 2.8% (for those making under $30,000), up to 10.8% for those in the top earning group. Talks were to begin immediately with unions this week, and UAL CEO Glenn Tilton told Reuters that the $9 billion in givebacks proposed by former CEO Jack Creighton was "much more like what was needed" than the $5.2 billion that UAL was negotiating with the unions before bankruptcy.
United Airlines listed $22.7 billion in assets and $21.4 billion in debts in its Bankruptcy Petition. The biggest unsecured debt holders are Bank of New York One Trust for unsecured bonds, and Airbus SAS, which is owed $47.6 million. Electronic Data Systems (EDS), the world's second-largest seller of computer services, said its fourth-quarter and 2002 earnings would be reduced by 5 cents a share because of its $40-million investment in UAL aircraft leases. This is only the most immediate fallout of the bankruptcy.
One of the first places United will cut costs will be in its aircraft fleet. The huge Boeing 747s, ideal for flying to Asia, may be among the first to go back to the companies that carry the leases, including Boeing. United does not want to give up its international, and especially its Pacific, routes, but will be pressured to use smaller jets. GE, Disney, and Ford also hold United leases. United is expected to follow the cost-cutting model of other airlines and outsource jet engine repairs to the manufacturers.
CEO Tilton told Reuters that any UAL assets that do not clearly fit in "the new United," will be sold fairly quickly. There are also reports that Lufthansa is interested in an equity stake.
A liquidation of United is not out of the question. TWA filed for bankruptcy three times, before it was sold to American Airlines early last year. Eastern Airlines, Pan Am, Braniff, and others didn't survive bankruptcy. Continental Airlines has gone bankrupt twice, most recently in 1994.
Oil-Refining Capacity a Weak Flank
The unabated decline of oil-refining capacity in the U.S. exposes another weak flank of the American economy. Just as parts of the states are hit by potentially deadly winter freezes, with demands for heating oil shooting up by 25% in recent days, official data show that U.S. heating oil reserves are 17% below the level of November 2001. The main reason is the continuing decline of U.S. refining capacitywhich came to public attention during the California energy crisis almost two years ago. With Venezuelan ports and refinery sites shut down by the general strike there, filling the gap with extra shipments from Venezuela is not possible at the moment.
U.S. Machine-Tool Consumption in Breakdown Collapse
In October 2002, machine-tool consumption by U.S. industry totalled $186.93 million, down slightly from $186.95 million in September, which was up from the record low reached in August, according to a report issued Dec. 9 by the American Machine Tool Distributors Association and the Association for Manufacturing Technology. This total for October 2002, although one of the best months of the year, is down 0.6% compared to the level in October 2001. For the first 10 months of 2002, U.S. machine tool consumption, at $1,724.34 million, compared to the same period in 2001, represents a steep fall of 26.6%another indication of the need for LaRouche's "Super TVA" program.
Machine-tool production closely parallels machine-tool consumption.
By viewing the process from a higher level, the disaster is made clear.
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U.S. Machine Tool Consumption, on an Annual Basis |
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($ billions)
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1997
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$5.56
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1998
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4.91
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1999
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3.90
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2000
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3.99
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2001
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2.67
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Thus, U.S. machine tool consumption in 2001 was already in a depression, at less than half the level of 1997, and the first 10 months of 2002 are 26.6% below the first 10 months of 2001. Machine tools incorporate into their design the most advanced scientific discoveries, and by transmitting them, increase the productivity of the economy as a whole.
Bush Contemplates Privatization of U.S. Postal Service
A nine-member commission newly appointed by President Bush will review the U.S. Postal Service's mission and operations, as part of Bush's plan to allow private contractors to compete for nearly half of the government's civilian jobs in coming years. A report recommending "legislative and administrative reforms" to make the postal system more efficient and cost-effective, must be submitted to the President by July 31, 2003.
Bush named as co-chairmen James Johnson, head of the Brookings Institution; and Harry Pearce, chairman of Hughes Electronics Corp.
The Postal Service, which has already been partially privatized, is required to provide First Class mail delivery nationwide at a uniform price ("universal service") and to break even over timebut does not receive taxpayer funding, instead relying on revenue from operations. In the fiscal year that ended Sept. 30, the Postal Service lost $676 millioneven though it had cut 23,000 jobs. It has already outsourced billions of dollars in operations.
The second-oldest department or agency of the Federal government, the Post Office Department (renamed the Postal Service in a reorganization in 1971) began in 1775 (under the Continental Congress) with Benjamin Franklin, the father of the American Revolution, as Postmaster General.
Manhattan's Top-Tier Real Estate Prices in Free-Fall
The prices of multiple-room and luxury apartments in Manhattan, which command $3 million and up, have fallen by as much as 25% during the past six months, the New York Post reported Dec. 8. During that period, the number of upper-end apartments on the market has increased by about one-third, indicating that many people are trying to sell those higher-priced apartments, but can'twhich shows that that portion of the housing bubble is starting to seriously weaken. However, there exists a market for "lower-end" apartments in Manhattan: During the third quarter of this year, the median price for a studio apartment, which has only one major room (with attached kitchen and bath), jumped by 6%, to $235,000.
Wall Street Police Blotter
Cendant Corp.'s former chairman Walter Forbes was indicted on Dec. 11 on insider trading charges, accused of selling more than $11 million in company stock one month before Cendant (the world's largest hotel franchiser) disclosed accounting fraud in April 1998a disclosure that led to a $14-billion drop in its market value in a single day. A Federal grand jury in Connecticut indicted Forbes and ex-vice chairman E. Kirk Shelton, both of whom had been indicted before, on new charges of securities fraud and making false statements to the Securities and Exchange Commission. Both men allegedly inflated revenues for a decade at CUC Inc., which merged in December 1997 with HFS Inc. to create Cendant.
Safety-Kleen Corp.'s former chief financial officer Paul Humphreys was charged Dec. 12 with conspiring to overstate the company's earnings by more than $250 million, a fraud that helped drive one of the country's largest waste-disposal firms into bankruptcy. A Federal grand jury in Manhattan indicted Humphreys on one count each of conspiracy, securities fraud, and bank fraud, alleging that he and controller William Ridings illegally "adjusted" upwards the company's 1999 and 2000 earnings resultsby 83%, or $267 millionto meet targets that executives had predicted during an acquisition.
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