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United machinists, mechanics OK pact

| Wednesday, June 1, 2005

CHICAGO -- United Airlines secured two critical labor deals Tuesday to remove the threat of a crippling strike during peak travel season, gaining a contract agreement in principle with its machinists union just hours after its mechanics voted to ratify a separate pact.

The wage and benefit concessions by the two employee groups should strongly boost United's quest to get out of bankruptcy, all but completing efforts to cut labor costs by a further $700 million annually.

No less important, the developments also came just in time to avoid a potentially strike-triggering ruling by a bankruptcy judge, who was set to issue an order annulling existing contracts and imposing pay and benefit cuts unilaterally had there been no agreement.

The machinists union had put its 20,000 baggage handlers, customer service representatives and other ground workers on notice to be prepared to walk off the job and shut down the nation's second-largest airline if its contract was broken. Barely two hours before the afternoon court session, an agreement was reached on the final sticking point -- a replacement pension plan -- and strike preparations were called off.

"Our folks are now standing down," said Randy Canale, president of District 141 of the International Association of Machinists and Aerospace Workers. "We now have what we wanted all along, which is a fair and equitable settlement on all issues."

While the two sides said they need until June 17 to work out a formal contract, both indicated that no significant hurdles remain to be cleared. United Chief Financial Officer Jake Brace said it's "unlikely" the deal could fall apart.

United, a unit of Elk Grove Village, Ill.-based UAL Corp., issued a statement saying the pair of developments "bring to a close a major phase of our restructuring." The labor deals, the company said, "move us significantly forward in our restructuring and set the stage for our exit from bankruptcy."

United says it had to slash labor costs -- its biggest expense -- again to exit bankruptcy as a profitable airline. It has lost more than $10 billion since 2000, including more than $5 billion during its bankruptcy restructuring, and its attempts to recover have been bogged down by record fuel costs and decade-low fares.

While extracting a second round of concessions from the machinists in bankruptcy -- about $175 million annually -- United gave in to the union's demand that contributions to a replacement pension fund be steered into the IAM's National Pension Plan rather than a company 401(k).

Further details of the prospective contract were not disclosed. It must still be ratified by IAM members, although the union's endorsement leaves little doubt it will be approved.

The two sides bargained through much of the holiday weekend and worked out the basic terms of an agreement at an undisclosed location near O'Hare International Airport shortly before heading to court to announce it. Underscoring how close they were to a likely strike, Judge Eugene Wedoff said after being informed of the deal that he had just finished a court order -- now unnecessary -- to address the impasse.

Hours earlier, the Aircraft Mechanics Fraternal Association announced that United mechanics had agreed by a 59 percent to 41 percent margin to ratify a contract containing $96 million in annual concessions, including 3.9 percent pay cuts and lowered benefits.

The 7,000 mechanics, like other employee groups, have expressed anger about the back-to-back contract cuts during the airline's 2.5-year-old bankruptcy. But they knew they ran the risk of putting United out of business with a vote rejection and strike.

"This vote signifies ratification but not acceptance," said AMFA Local 9 president Joseph Prisco, whose unit represents 52 percent of United mechanics -- based in San Francisco and Hawaii.

The mechanics' new pay cuts come on top of 14 percent reductions made two years ago.

A 5 percent defined-contribution pension plan is part of the new contract, replacing the former defined-benefits plan. The mechanics' union also will get $40 million in convertible notes upon United's exit from Chapter 11 bankruptcy.

Interim contracts for the two groups were set to expire yesterday. The machinists' temporary deal, calling for 11.5 percent pay cuts, was extended until the new agreement is put in place.

Separately, United said it has to return four of its Boeing 767s to leasing companies because of an inability to reach a deal on new rental terms. Four other disputed aircraft also are at risk and might have to be returned if ongoing lease negotiations fail, United spokeswoman Jean Medina said.

The repossession is the result of a court ruling in early May by the U.S. 7th Circuit Court of Appeals, reversing a November order by Wedoff that barred lessors from taking back 14 of United's 460 airplanes. The court said the planes could be repossessed unless United paid off its rental payments in full.

United subsequently rejected leases on six of the disputed planes, leaving eight vulnerable to repossession.

Medina said one route will be dropped because of the repossessions, between Chicago and Buenos Aires. United will continue to fly to Buenos Aires out of Washington.

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