Carrier Could Raise Millions, Reduce Union's Power

Before it declared bankruptcy in 2002, United Airlines had one of the largest and best-equipped maintenance departments around. It was housed in an $800 million, state-of-the-art maintenance center in Indianapolis, and employed more than 15,000 mechanics.

That facility was shuttered in 2003. Now, the carrier is looking at spinning off its entire maintenance division -- including United's repair base at San Francisco International Airport, according to the Chicago Tribune.

Such a move would affect some 2,800 United mechanics, most of them based in the Bay Area, sources say. Line maintenance workers in San Francisco, O'Hare or elsewhere -- those who perform routine, overnight repairs -- wouldn't be affected.

The carrier hired McKinsey and Co. to develop strategy options for its repair, overhaul and maintenance operations that handles not only its own routine repair work, but also that of about 150 other carriers -- the division also employs about 5,500 workers.

"We are contemplating bringing in third parties who can invest in the maintenance, repair and overhaul business," said United spokesperson Jean Medina. "This will enable us to continue to provide the highest quality maintenance to United and our customers. We are working cooperatively with our labor groups to ensure that any arrangement would be for the long term with a partner that creates value for our customers, investors and employees."

There is another side-benefit for United to hand off its maintenance operation, as well. Any move impacting the SFO maintenance base stands to potentially lessen the power held by the Aircraft Mechanics Fraternal Association -- which earlier this year slammed United for allegedly outsourcing more maintenance work to third-party vendors than is allowed under its current contract with mechanics.

Company executives want a joint venture of sorts, that would allow United keep a minority stake in maintenance operations while giving control to an outside investor such as a third-party contractor, another carrier, or perhaps a hedge fund, the Tribune reported.

Such a deal could help United raise a bit of cash -- hundreds of millions of dollars, actually -- from outside investors. It would also help the company avoid spending more money to the keep its 1950s-era maintenance facility going.

Industry insiders say the move is an apparent end to United's attempt to turn the maintenance division, United Services, into a moneymaker. United Services generated $280 million in revenue in 2006. About 75 percent of that was from maintenance and repairs.

The division could be valued at as much as $600 million, according to investment bank Bear Stearns & Co. The firm's July 17 research report said recent deals in its sector indicated it to be worth around $330 million.

That same report also estimated United could generate billions of dollars -- plus just about double its stock price --  by getting rid of some non-essentials such as real estate, a few international routes, and the airline's frequent-flier program.

FMI: www.united.com, www.mckinsey.com, www.amfanatl.org