United to file to void contracts

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Things should start getting very interesting now.
United to file to void contracts
Bankrupt airline says it hopes to reach new union deals but will file Dec. 26 to void contracts.
December 17, 2002: 7:00 PM EST
By Chris Isidore, CNN/Money
NEW YORK (CNN/Money) - United Airlines is prepared to go to bankruptcy court soon after Christmas to start the process to void its labor contracts if it doesn't reach agreement on deep concessions from its unions.
The world's No. 2 airline, which filed for bankruptcy court protection on Dec. 9, said its preference is to reach agreements with the unions, not seek court action. But it said it would file a motion Dec. 26 to change the contracts if it doesn't reach agreement.
It seemed to acknowledged it would not have new agreements in place by that point, but said it would continue to negotiate in good faith with the unions on new wage deals after making the court filing.
While United will continue to work collaboratively with its unions, the filing of this motion would be necessary to ensure that United remains in compliance with the financial requirements of the company's debtor-in-possession (DIP) financing agreements by seeking the court's assistance should the company and the unions fail to reach consensual agreements, said the company's statement.
The airline has lined up $1.5 billion in financing to take it through bankruptcy reorganization, but has only closed on $800 million of that package. The rest is contingent on the airline reaching agreement with the union on cost reductions.
Union officials did not seem surprised by the move. In a statement, the Air Line Pilots Association described the filing as purely procedural, and the International Association of Machinists described United's announcement as an expected part of the bankruptcy process in a letter to members.
However, the pilots' union added that United's actions in negotiations so far gives us pause and concern, and said the company had not provided the union with information about its business plan.
Association of Flight Attendants spokeswoman Sara Dela Cruz said the filing will not stop the company's unions from trying to reach a new labor agreement with United management.
This is not a shock to us, she said. We're still committed to working outside of the bankruptcy court process with the company.
The AFA says that United is seeking $2.4 billion in annual cost savings from labor and that the unions will work to lessen that amount of cuts. The IAM has told members that United's proposal is for a 13 percent wage cut, and changes in job protection language, such as a requirement that heavy maintenance of aircraft be done inside the United States and that the company can't sell or lease out its major maintenance facilities.
United would not comment on the $2.4 billion cost saving target. That cut would be about 150 percent more than it had negotiated with the union leadership in annual cost savings before the bankruptcy filing. But the IAM unit that represents mechanics and ground workers voted against even that more modest concession package, despite strong lobbying by union leadership and the threat it could bring on bankruptcy.
An ALPA spokesman said Monday that the pilots union was looking at the new proposed cost cut but couldn't commit to it without seeing the company's entire business plan.
Shares of UAL (UAL: Research, Estimates) lost 23 cents, or 15 percent, to $1.27 in trading Tuesday, although shares rose 11 cents in after-hours trading.

 

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United Airlines wants mechanics to take an immediate 13 percent cut in pay and accept provisions that could lead to the closure of the Indianapolis maintenance center.

The proposal, part of the company's effort to reduce costs amid last week's bankruptcy filing, was posted on the union's Web site. It drew strong criticism from local union leaders.

"There is no way I can support this offer," said Ben Nunnally, president of International Association of Machinists and Aerospace Workers Local 2294.

United's unions met with advisers Monday to review the carrier's proposal for severe cuts, which the flight attendants union said would more than double the previous targeted concessions, from $1 billion a year to $2.4 billion.

The day before Thanksgiving, the mechanics overwhelmingly rejected a 7 percent pay cut proposed by the company. Besides nearly doubling that pay cut, the new concessions package would slice virtually every major job security provision valued by mechanics in the contract. Those measures have had a secondary impact: keeping the Indianapolis maintenance center open.

United has two other maintenance centers, both in California.

Although United has not commented on the future of the centers, Indianapolis is the only one of the three sites whose work can be performed at the two others.

In addition, the San Francisco facility has an engine shop capable of complex work that can't be duplicated at any other United facility, while only the Oakland center has hangars that can accommodate wide-body planes.

Beyond the wage cuts, United wants mechanics to pay 20 percent of their health care costs, compared with a small deductible today. It also has proposed reducing severance pay from a maximum of 12 weeks' pay to eight weeks', and seeks to eliminate additional pay for mechanics with advanced licenses.

The company did offer to raise pay 1.5 percent a year through 2008.

Still, the proposed 13 percent pay decrease, coupled with the job security reductions, had many union representatives and mechanics grousing on Monday.

"A lot of it is very, very extreme," said Joel Beaubien, who chairs the local union's grievance committee. "Last week they were talking to us about having good relations and thinking outside the box. We thought we were there. To throw this at us? Are they serious?"

A company spokesman said United would not comment on the concessions package.

In a bankruptcy proceeding, union contracts can be voided or modified by a judge. Typically, however, they are modified only with approval from both the company and the union.

Michael Boyd, an aviation analyst from Golden, Colo., said it's imperative that United and mechanics agree on concessions rather than have a judge decide.

"These are human beings you're dealing with," Boyd said. "They had no pay increases for seven years. If you do something draconian, they will react."

Relations between the company and mechanics have been strained for more than two years. In 1994, mechanics agreed to take a pay cut and a six-year wage freeze. In return, they were given partial ownership of the company.

In 2000, contract negotiations began and took a grueling two years to complete. Despite negotiating an average 37 percent pay increase -- to about $65,000 annually -- mechanics were bitter.

By the time the contract was signed in March 2002, the company was deep into layoffs. Today, any mechanic with fewer than five years at United is out of a job. In Indianapolis, 750 have lost their jobs in the past 15 months, leaving 1,400 to 1,500 mechanics.

Whether United would close the Indianapolis operation remains in doubt. Company officials have said they would consider any cost-cutting measure.

"The rumors are, since they want to get rid of the language to close any of the three maintenance bases, Indy is on the chopping block," Beaubien said.

In 1991, United received $300 million in cash and tax incentives to build the maintenance center here. The company also pledged to employ 7,500 people in Indianapolis by 2004 or pay a penalty, but the bankruptcy judge could scrub that obligation.

The city and state also could agree to lower the penalty.

Scott Chinn, the city's corporation counsel, said he was less concerned about the penalty than about keeping the center open.

"Clearly, everything in bankruptcy is negotiable," Chinn said. "Our main interest is in making sure the maintenance facility will stay open, and that we keep jobs here in Indianapolis."