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The Honolulu Advertiser

Posted on: Friday, August 30, 2002

Airline wants $1.5B labor cut

By Dave Carpenter
Associated Press

CHICAGO — United Airlines said yesterday it is asking its employees to approve cutting its labor costs by $1.5 billion annually over the next six years as part of its emergency restructuring.

The labor cutbacks, to include pay reductions and the scrapping of recently negotiated raises, would provide the bulk of $2.5 billion the struggling carrier has targeted in annual savings in order to ensure its recovery.

But the powerful pilots' union called the proposals unacceptable, illustrating the challenges United faces in winning the concessions.

The first specifics of United's plan to transform itself into a smaller, more cost-efficient carrier came at the halfway point of its self-imposed 30-day deadline for reaching agreements with labor and other groups on far-reaching cutbacks.

"The company believes that the $2.5 billion target will better align costs with anticipated future revenues and increase the likelihood that the company will qualify for $1.8 billion in loan guarantees from the Air Transportation Stabilization Board," the airline said in a brief statement late yesterday afternoon, a day after presenting its proposals to the unions.

Without a consensus on cuts, CEO Jack Creighton reminded employees this week, the airline might be forced to file for Chapter 11 bankruptcy.

United did not disclose how the $1.5 billion in labor reductions would be allocated among different unions. But the machinists' union said it has been asked for $450 million in annual givebacks from its employees.

Another big union at United, representing flight attendants, is being asked to give up a total of $100 million, according to a source familiar with the proposal who spoke on condition of anonymity.

The Association of Flight Attendants declined to comment.

The airline is almost certainly seeking more concessions from its pilots, who are higher paid and have a larger stake in the employee-owned carrier.

The pilots' union declined to reveal specifics but said the proposed cuts go far beyond those it tentatively agreed to this summer on the condition that other employee groups agree to similar moves — 10 percent wage cuts over three years, $500 million each year.

"We feel like we're being slapped in the face," said Herb Hunter, a United pilot and spokesman for the Air Line Pilots Association. "The pilots have tried to take a leadership role, and the proposal that we've gotten back from the company is unrealistic."

The International Association of Machinists and Aerospace Workers posted the company's new terms on union Web sites while its leaders reviewed them. The union did not respond to the proposal but said United's management made it clear that the huge cost-savings total it put forward is non-negotiable.

The proposal to the machinists' union calls for mechanics, ramp workers and other IAM-represented workers to take immediate pay cuts and forgo raises negotiated earlier this year for 2003 and 2004, to be replaced by annual 1.5 percent pay increases, IAM officials said.

District 141 members — ramp, customer contact and cabin service employees — are being asked to provide a $265 million yearly cost reduction and take 9.5 percent pay cuts. District 141-M members — mechanics and aircraft cleaners — are asked to reduce costs by $185 million, including 10.4 percent wage cuts.

The company also would contribute less to employees' medical and dental plans.

Those proposed cuts are part of a companywide push to sharply reduce costs in hopes of receiving the federal loan guarantee it says it urgently needs to help pay off impending debt obligations, and to help it end more than two years of unprofitability.

Creighton announced Aug. 14 that United might have to file for bankruptcy-court protection this fall if it can't reach major cost-saving agreements by mid-September with its employees, vendors and lessors.

He said this week that the airline intends to file a revised loan-guarantee application on Sept. 16 if it can secure those agreements.