Crain's Article

[BR][SPAN class=featureHeadline]UAL seeks lender leeway as union talks drag on[/SPAN][BR][BR][BR]October 14, 2002[BR]By [A href=mailto:pmerrion@crain.com]Paul Merrion[/A][BR][BR]United Airlines' anticipated flight to Bankruptcy Court isn't leaving the gate anytime soon.[BR][BR]Deadlines have come and gone, but talks between labor and management have continued as UAL Corp., United's Elk Grove Township-based parent, prepares to report another huge quarterly loss this week on the way to perhaps $2 billion in red ink this year. That's on top of last year's $2.1-billion loss.[BR][BR]Right now, we don't have a deadline, says a spokesman for the United chapter of the Air Line Pilots Assn.[BR][BR]In August, the company set a Sept. 16 target for a deal on concessions, before Glenn F. Tilton was named CEO on Sept. 2. The unions rejected previous management's demand for $9 billion in labor cost savings over six years, and on Sept. 25, they proposed $5 billion in cuts over five years.[BR][BR]What's driving the process now is not this arbitrary schedule, nor is it the almost $900 million in debt payments coming due in November and December. It's this: Lenders are likely to provide some leeway as long as reasonable progress is under way on concessions that United needs to remain solvent, aviation experts say.[BR][BR]No one will want to push them into bankruptcy, says Sanford Rederer, president of Virginia-based Aviation Planning & Finance, an airline industry consulting firm. If they have anything to show, the lenders would give them more time.[BR][BR]The talks could drag on into December, as long as there is a realistic hope of significant concessions to obtain a $1.8-billion federal loan guarantee.[BR][BR]But if talks break down — thus putting the federal loan guarantee out of reach — the nation's second-largest carrier will be compelled to quickly file for Chapter 11 bankruptcy protection to preserve the cash it will need to restructure and emerge from bankruptcy.[BR][BR]The timing depends on United's calculation of how long it will take to get the federal loan guarantee approved before the program expires at yearend. It takes about 30 days to conduct rank-and-file votes on contract concessions, so United would need a tentative agreement from labor leaders by Dec. 1 or so.[BR][BR]But the tough-talking machinists union, United's largest employee group, wants to nail down its definition of cost cuts in talks starting this week, even before an agreement for overall labor savings has been reached with the other unions. The machinists last week broke away from a union coalition negotiating concessions with the airline.[BR][BR]United Airlines needs to reduce its labor costs, but cost reduction does not necessarily mean pay cuts, says Robert Roach Jr., general vice-president of the International Assn. of Machinists. If needed, wage reductions should only be considered as an option when there are no other choices for cost reductions.[BR][BR]©2002 by Crain Communications Inc.[BR][BR][BR][BR][BR][BR]
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