United Airlines Pulling Out of Bankruptcy (Essay Sample)

United Airlines Pulling out of Bankruptcy
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United Airlines Pulling Out of Bankruptcy
United Airlines is one of the major airlines in the United States and has its headquarters at the Willis Towers Chicago. Based on the size of the fleet and the number of customers served in the airline per year, it is the third biggest airline globally. It is expected that based on the number of customers and the fleet size that the airline is supposed to be making huge profits every year. However, that is not the case as the airline has been unable to cater to its financial commitments and control its debt. This has made the organization a huge financial c crisis, which forced the organization to make the firm under bankruptcy protection. The United stayed under bankruptcy protection for more than 18 months Between 2002 and May 2004. To be out of bankruptcy protection, it is important to restructure the finances and debt management and be favorable to the firm creditors and the management of the firm. The new finance structure should enable the firm to thrive and cope with the airline's stiff competition and economic recession.
Question One
Different internal and external factors have forced United airlines to sign for bankruptcy protection. External factors that have forced the management to protect include the slumpy economy and the 2001 terrorist attack. The United States experienced a huge economic recession that immensely reduced the economy's performance, implicitly affecting the operations of United airlines. America was the target of terrorist attacks during 19990-2001 due to the American government’s strict policies against the terrorist. The attacks hugely affected the airline as most people feared using flights as means of transports as they were a major target for terrorist attacks. Internally, United’s management had made poor decisions and had flawed business strategies, making it hard for the firm to cope with the tough financial crisis and thus filing for bankruptcy management. Poor decisions made it hard for the organization to manage its debts, whereas the flawed business strategies made it impossible for the organization to cope during the economic recession.
Question Two
United Airlines had a huge debt-to-equity ratio like many other firms in the airline industry. Most firms in the airline industry have a high debt-to-equity ratio because of the high capital requirements for running and controlling the operations of an airline. Most airlines rely on debts and external financing to finance their operations. The goal of any airline is to provide travel services to its customers while making a profit. For a firm to make significant profits, it must control its debt and have significant reductions in its expenses. For United to fully survive and have smooth operations going forward, it is of essence to have a good management plan on managing and controlling the high debt-to-equity ratio.
Question Three
United Airlines has opted to use the debtors-in-possession financing to cater for its operation. The use of debtors to finance its operation is important as it will help the airline operate smoothly without facing any challenges continuously. The challenges may make the airline lose its customers to the competitors, which may even lead to the airline's amalgamation. Also, through DIP financing, the debtors will be explicitly involved in the management of the airline and thus provide their ideas on the measures that can be undertaken to be out of the financial crisis.
Question Four
When the company is faced with financial problems and cannot manage its debts, most firms tend to liquidate their assets to meet its debt obligations. Even though liquidating assets enables the organization to pay out its debts, it leaves the organization in a deeper financial crisis as it tries to refinance and come up with new ass