United nearing deal with machinists
By Dave Carpenter
Associated Press
CHICAGO — Intensifying its push to avoid bankruptcy, United Airlines closed in yesterday on a tentative wage-cutting agreement with its 36,000 machinists — the key missing element in its plan to slash labor costs by $5.8 billion over 5 1/2 years.
The carrier's pilots also contributed timely support for United's campaign for a federal loan guarantee, announcing they had ratified the recent agreement on their $2.2 billion portion of that austerity package. It confirmed their willingness to take 18 percent pay cuts to try to revive the struggling airline.
The flurry of new developments — most notably Sunday's restructuring plan envisioning 9,000 more job cuts, 6 percent fewer flights and $2 billion less in capital spending — renewed investors' flagging hopes that United can dodge bankruptcy. Shares in parent UAL Corp. climbed 55 cents, or 19 percent, to close at $3.50 on the New York Stock Exchange.
But as even chief executive Glenn Tilton acknowledged, it remains unclear whether the series of cutbacks will enable United to avoid landing in bankruptcy court by year's end. Its daily operations are continuing to hemorrhage more than $7 million in losses a day.
Tilton told employees that regardless whether United carries out its restructuring out of court or under Chapter 11 protection, "all that we're doing today is going to serve us well in the future and to create a more competitive and a more vigorous United in the world marketplace."
A decision on whether to go the bankruptcy route may be made by Dec. 2, when cash-starved United is required to repay $375 million in aircraft-backed loans.
United and leaders of the two International Association of Machinists groups representing mechanics and ground workers continued talks yesterday on the recovery plan. Both Tilton and spokesman Joe Tiberi of the International Association of Machinists said agreements appeared near, although union members would still be able to reject any deal in a ratification vote.
"We think we'll be able to have something to our members and ratification voting completed by early December," Tiberi said. The voting process normally takes about two weeks.
Securing those agreements would be the biggest boost yet for United's chances of getting a $1.8 billion government loan guarantee from the Air Transportation Stabilization Board, which remains mum on the airline's prospects. The machinists are the last employee group not to have agreed to cuts as part of the targeted $5.8 billion.
Separately yesterday, United confirmed that its salaried and management employees will take wage and other cuts contributing $1.3 billion in savings, as outlined in October.
Airline industry analyst Ray Neidl of Blaylock & Partners speculated that United's odds of receiving the loan guarantee had improved, albeit "barely."
"The question remaining is whether the (machinists') rank and file will approve these changes," Neidl said. "My guess is they will. The bigger question is whether the ATSB believes these cuts are real. That's still a matter of guessing."
About 95 percent of United's 8,800 pilots ratified their agreement, which takes effect only if the loan guarantee is granted. Paul Whiteford, head of the pilots' union and a member of the 55 percent employee-owned company's board of directors, said it showed that pilots have "rallied around" an out-of-court restructuring program.
"The recovery program is the best and only realistic course of action for United," Whiteford said.
United said that in order to obtain the labor agreements on pay cuts, it had agreed to grant stock options to participating employees representing 30 percent of UAL's shares, or roughly 52 million. Specifics were not announced.
United has pledged to keep flying its regular flight schedule even if it files for federal bankruptcy-court protection from its creditors.
"Our goal, obviously, is to restore the financial health of United and repay the loans that we hope to receive from the ATSB guarantee program," Tilton said of the restructuring in his weekly taped message to employees.
On Sunday, the carrier said it will drop from its current 83,000 employees to 74,000 over the next year, retire 49 of its larger aircraft and reduce the number of cities it serves and flight frequencies by 6 percent — steps it said would return it to profitability in 2004. It is expected to lose more than $2 billion this year for the second straight year.
Before the Sept. 11 terrorist attacks, which occurred at a time when United already was mired in financial trouble, the Elk Grove Village, Ill.-based carrier had 100,000 employees and was operating about 2,400 flights per day.
