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United Seeks Union Contract Cuts

A day after getting the legal go-ahead to dump its employees' pensions, United Airlines returned to the negotiating table and the courtroom Wednesday in a high-stakes bid to expand its cost-cutting by rewriting two unions' contracts.

Angry labor unions continued to warn of possible strikes, although they said they were not taking any immediate actions pending the outcome of talks or bankruptcy court actions involving their contracts.

Underscoring the urgency of its effort was the carrier's announcement of its biggest quarterly loss in two years, a $1.1 billion deficit for the first three months of 2005. UAL Corp., United's parent, has now lost $5.8 billion since entering bankruptcy in December 2002.

The International Association of Machinists and Aerospace Workers announced its members had voted by a 94 percent majority this month to authorize a strike if United succeeds in unilaterally imposing new contract terms, as the airline was attempting to do in a potentially lengthy court process beginning Wednesday afternoon.

"If a contract acceptable to our members is not negotiated, then we will be guided by the direction our members have given, which is to strike United Airlines," said Robert Roach Jr., general vice president of transportation of the union, which represents baggage handlers and public contact workers.

Strike threats, while rarely carried out, are particularly powerful bargaining weapons in the airline industry since they can put carriers out of business if employees walk for any length of time. Even the hint of a strike can be costly to an airline in terms of lost bookings.

United, a unit of Elk Grove Village, Ill.-based UAL, has contracts in place with its pilots and flight attendants through 2010 but has been unable to negotiate agreements on long-term pacts with the mechanics' and machinists' unions.

The company resumed talks with the Aircraft Mechanics Fraternal Association on Wednesday and is set to hold its next bargaining session with the IAM next week. But on Wednesday afternoon, United proceeded with its contingency plan, appealing to Judge Eugene Wedoff to have the contracts rewritten without either union's consent unless deals can be reached in the coming days.

In opening testimony of a trial that could last a week or more, United scheduled presentations designed to underscore its argument that relentlessly high costs leave no option but for employees' pay and benefits to be cut for the second time in its 29-month-old bankruptcy.

In results released less than an hour before the start of the trial, United said it had a $250 million operating loss for January through March due mostly to continuing high fuel costs. That was down from a $211 million operating loss in the first quarter of 2004.

The net loss of $1.1 billion, or $9.23 per share, included two huge restructuring costs: $433 million related to the termination of ground workers' pensions and $294 million for rejected aircraft leases. The latest loss compared with a loss of $459 million, or $4.17 per share, a year earlier.

Revenue was virtually unchanged from a year ago at $3.9 billion.

CEO Glenn Tilton said the company's results showed progress despite the latest loss in a tough industry environment.

"Progress to reduce costs throughout the system has been substantial and we are pressing ahead to further reduce costs and inefficiencies in all areas of the business," he said.

Shedding billions of dollars in pension obligations removed a major roadblock standing between the company and its hoped-for exit from bankruptcy later this year, but scarcely the last one.

Standard and Poor's analyst Philip Baggaley noted that besides reaching contract agreements, United must avoid serious labor disruption as a result of the pension or contract terminations, reach agreement with creditors, improve operating results and develop a creditable business plan, among other challenges.

"The most important immediate benefit of the terminations is that it will help UAL and United attract financing to exit from bankruptcy," Baggaley said in a note to investors. "That move itself does not assure access to financing, but without it, chances of attracting the financing appear dim."

The most outspoken of United's unions concerning pension terminations has been the Association of Flight Attendants, which has threatened to carry out periodic, unannounced job actions to disrupt the carrier's flight schedule. Spokeswoman Sara Nelson Dela Cruz said the union was still reviewing its options Wednesday and was not carrying out any strikes.

The mechanics' union prepared a new contract offer to present to United management on Wednesday, according to AMFA spokesman Richard Turk. He said it included a specific offer on a proposed replacement for the defined-benefit pension that United is eliminating something all unions must now negotiate in the wake of Tuesday's court ruling approving the transfer of the pensions to the Pension Benefit Guaranty Corp.

"The company said they're going to negotiate through the trial, and we're going to hold them to it," Turk said. "There's not a lot of movement, but we're not going to give up."

By Dave Carpenter

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