United and unions face stark choice, industry experts say

By Don Babwin
Associated Press

CHICAGO — While United Airlines seeks protection from its creditors, it also will need to secure the cooperation of its unions to emerge successfully from Chapter 11 bankruptcy.

But relations between United and the 83,000 employees who own 55 percent of the company have not always been easy.

Two years ago, pilots and mechanics caused thousands of flight delays and cancellations during stalled labor negotiations. And two weeks ago, as the company desperately was trying to avoid bankruptcy, mechanics rejected a plan to contribute $700 million in wage concessions.

Last week, everybody involved was saying the right thing about cooperation, using the word "United" as an attitude as well as an airline — but the question remains: Will they work together?

"They better," said Aaron J. Gellman, a professor at Northwestern University's Transportation Center. "Because if they don't, they run the risk of going into Chapter 7, liquidation. If that happens, everybody loses."

Joseph Schwieterman, an aviation industry expert and economics professor at DePaul University in Chicago, agreed.

"The parallels with Eastern Airlines are almost scary," he said, referring to the struggle between labor and management more than a decade ago that helped drive that airline out of business. "All United employees should read the history of Eastern Airlines."

One thing that may be history is an employee-owned United — something the airline has long touted. CEO Glenn Tilton would not say whether he wants the company's employee stock ownership program dissolved.

"I think we're just going to have to take that situation and manage it, deal with it constructively as we go through the case," he said.

But Schwieterman said he believes the bankruptcy filing effectively brings an end to the days of an employee-owned airline.

"I think the idea of employee ownership will have merely symbolic value," he said. "The real money will probably belong to banks and others with deeper pockets."

It is clear that labor costs will have to be cut. Nobody, though, is saying how much.

United, while not getting specific, is suggesting that employees will have to take a big hit. In its bankruptcy court filing, the company said the only way to turn the airline around will be to "reduce their labor and other costs dramatically."

Gellman said the pilots in particular have to be prepared to slash their costs.

"My guess is they have to give much more than the $2.2 billion they offered," he said.

Unions point to their recent proposals as evidence they are willing to cut costs.

Since 9/11, "we have worked with the company, along with other unions at United, to produce an unprecedented labor cost reduction package and out-of-court restructuring program for United," said Paul Whiteford, chairman of the United unit of the Air Line Pilots Association.

But it is also clear that the unions don't think their costs are to blame for the airline's troubles.

"Labor costs aren't the problem at United and other carriers," said Jeff Zack of the Association of Flight Attendants.

Poor management decisions, including the attempted merger with US Airways, cost them billions, Zack said.