Continental Considered Bankruptcy, May Sell Assets
HOUSTON (AP) _ Continental Airlines’ board of directors briefly considered filing for Chapter 11 bankruptcy, but decided instead to seek other ways to return to financial health, a spokesman said Wednesday.
Unidentified sources quoted in Wednesday’s editions of The New York Times and The Wall Street Journal said a team of lawyers worked through the weekend to prepare Chapter 11 papers to be filed in U.S. Bankruptcy Court after a board meeting on Monday.
Continental responded to the reports by issuing a statement Wednesday saying it had no plans to file for protection from creditors.
″We have streamlined our management, and like the rest of the industry, are considering other prudent business steps to assist during the fuel crisis,″ the airline said. ″However, Chapter 11 is not one of the means we intend to take.″
Later Wednesday, spokesman Ned Walker said, ″The board examined several different options, one of which was Chapter 11. But it was rejected in a unanimous vote by the board.
″Chapter 11 just doesn’t make sense for us. We have a lot of alternatives,″ Walker said.
They include possible asset sales, introduction of outside investors and cost controls, such as the postponement of a multimillion-dollar image campaign, he said.
Continental stock dropped 1 5/8 to $4 per share Wednesday on the American Stock Exchange. Meanwhile, Standard & Poor’s Corp. said it had downgraded its ratings on debt of Continental Airlines Holdings Inc. and Continental Airlines, because of problems brought on by higher fuel costs and sluggish demand for air travel.
The airline decided last week to remove 17 aircraft that were no longer fuel efficient from service on Dec. 1 and replace them with more efficient models. Walker said jet fuel costs have risen 125 percent since Iraq invaded Kuwait Aug. 2.
A $1.2 billion order for 25 Boeing 757s will still go through, he added.
″We’re in discussions with some parties that are seriously interested in investing″ in Continental, Walker said.
Continental’s core operations ″remain strong,″ he said.
″Speculation that efforts to contain costs might include a major downsizing of the airline is just that - speculation,″ the airline’s statement said.
The reports that Continental had considered bankruptcy surfaced a day after the carrier realigned its senior management team by cutting five top executives in an effort to trim costs.
For the first half of the year, Continental, which until June was known as Texas Air Corp., lost $8.7 million, compared with a loss of $365 million in the period a year ago. In June the carrier’s liabilities totaled $1.6 billion.
Third-quarter results, which have not yet been reported, are expected to show that Continental suffered losses during the normally busy summer travel season and has been hurt by higher fuel prices since the invasion of Kuwait.
Frank Lorenzo, who recently stepped down as chairman of Continental but remains on the board, reportedly opposes a Chapter 11 filing by the airline, as does Jan Carlzon, chairman of Scandinavian Airlines System, which owns 16.8 percent of Continental stock. A bankruptcy petition filing would reduce the value of SAS’s holdings.