United mechanics to vote on new offer

By Dave Carpenter
Associated Press

A United Airlines ticket agent checks in passengers at San Francisco International Airport. The airline and union agreed yesterday on a revised contract for mechanics, who have yet to approve concessions to avoid bankruptcy. Bloomberg News Service

Under an agreement reached early yesterday after a day of talks, mechanics are to vote Thursday on the same wage cuts — 6 to 7 percent — they voted down last week. Benefits terms were revised slightly in hopes of reversing the vote on the previous offer, rejected by 57 percent.

The agreement also bought time for United to decide whether to make a $375 million debt payment that would seriously deplete its cash resources. The payment was due yesterday, but United was expected to defer it under a grace period that expires Dec. 16.

The company declined comment on the status of the debt payment pending a meeting of its board of directors yesterday at its Elk Grove Village, Ill., headquarters.

The second vote gives United another chance to complete its proposed package of $5.2 billion in labor cuts over 5 1/2 years, the key plank of its application for a $1.8 billion federal loan guarantee.

In Hawai'i, the union's District 141, which includes approximately 160 mechanics, approved their agreements last week.

Yesterday's announcement of a new proposal for mechanics gave investors new hope, after Wall Street nearly wrote off United's chances of avoiding restructuring in bankruptcy court.

Shares in United parent company UAL Corp. climbed 77 cents, or 30.7 percent, closing yesterday at $3.28 on the New York Stock Exchange. The stock price was still down from before the mechanics' previous vote, which prompted a huge sell-off Friday.

"United still faces a difficult task in avoiding bankruptcy, but the second mechanics' vote provides the airline with a glimmer of hope," said Standard & Poor's analyst Philip Baggaley in a research note.

Even if mechanics approve the concessions, he said, United would need almost immediate approval of the loan guarantee from the Air Transportation Stabilization Board. And it would have to swiftly process and draw on the $2 billion private loan the government's backing would allow to make its Dec. 16 debt deadline.

Without the mechanics' approval of concessions, the airline is considered certain to be denied its request for a federal loan guarantee. With cash reserves estimated at around $1 billion and dwindling fast, United has indicated it will file for Chapter 11 bankruptcy protection if it fails to get the government's help.

The mechanics' targeted share of the $5.2 billion in labor cutbacks is $700 million. A second rejection of that amount almost certainly would sink the entire package, since cost-cutting agreements accepted by United's pilots, flight attendants and other employee groups expire Dec. 31 unless all groups sign on.

The machinists' union, which represents the 13,000 mechanics and related employees, said changes from the previous tentative agreement are a pledge from United CEO Glenn Tilton to resolve "quality of work-life issues" and a clarification that employees would be able to select which four vacation days would be unpaid.

Union president Scotty Ford said those matters were cited as sticking points by an overwhelming majority of mechanics who rejected ratification Wednesday.

Union spokesman Joseph Tiberi said "quality of work-life issues" include working locations, scheduling of shifts, employee input and other matters intended to result in "a better work environment for everybody."

After losing an industry-record $2.1 billion last year, United is headed toward exceeding that loss this year as it struggles with a weak economy and decline in business travelers.

The airline has pledged to keep flying if it files for bankruptcy, but is trying to avoid a filing because its shares likely would be worthless and it would lose control of restructuring to a judge. The airline is 55 percent owned by employees.

Moody's airline analyst Rich Bittenbender said United's all-out effort to stay out of bankruptcy court may be a sign it is getting encouraging signals from the ATSB members who will rule on its application for a loan guarantee.

"I have to believe United feels they have a reasonable opportunity to meet the ATSB request for the conditions for the guarantee," Bittenbender said.