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The Honolulu Advertiser
Posted on: Friday, November 29, 2002

UAL a step closer to filing for Chapter 11

Advertiser News Services

CHICAGO — UAL Corp. was teetering on the edge of a trip through bankruptcy court after its mechanics served up a reality check yesterday by soundly rejecting a pay cut proposal.

No longer is it a question of "if" UAL, the parent of United Airlines, files for bankruptcy, but it has now become a question of "when," industry experts said.

As a result of the mechanics vote, the airline falls short of the $5.2 billion in employee pay cuts that are essential to secure federally backed loans and avoid bankruptcy.

"I expect that their shares will go down to $1 or maybe below when the stock market opens on Friday," said Ray Neidl, one of the few Wall Street analysts who has been holding out hope the airline would avoid bankruptcy. "I doubt there will be too many optimists left after this."

Since Nov. 1, UAL shares have been steadily climbing as each employee group reached tentative concession deals with the airline. On Wednesday, UAL shares closed at $3.63 on the New York Stock Exchange, up 12 cents, apparently on a belief that the mechanics would approve the final piece of the concession package.

But results released yesterday showed that 57 percent of mechanics voted against the tentative pact, which would have required the 13,000 mechanics to accept a 7 percent pay cut and give up four days of vacation pay.

Airline officials were trying to schedule further discussions. The soonest a reconsideration vote could be held, however, would be the middle of next week.

While United's mechanics were turning down the plan by a 3-to-2 ratio, the airline's 24,500 ramp, gate and customer service workers easily approved the agreement.

United has spent months negotiating concessions from its labor groups, lessors, lenders and suppliers in an effort to qualify for a $1.8 billion federal loan guarantee.

The rejection by the 13,000-member mechanics' unit reflected years of anger and resentment against both the company and their union.

"A lot of people would rather see them actually file Chapter 11 than to give a pay cut, because we gave them a pay cut for all those years and got nothing in return," says Dennis Sanderson, a United mechanic who earns about $70,000 a year at Dulles International Airport near Washington.

Sanderson refers to wage cuts three large labor groups traded in the 1990s for 55 percent of UAL's stock.

"The company went to them in 1994 and they gave up 15 to 20 percent of their income and in exchange got stock that now has less value than wallpaper to go," said Michael Boyd, president of the Boyd Group airline consulting company.

Some mechanics may also have been influenced by a bitter battle between the International Association of Machinists and the Aircraft Mechanics Fraternal Association, which seeks to represent United's mechanics.

Others may have been swayed by US Airways' announcement Tuesday that it wants even more concessions from employees on top of what it already received while seeking a $900 million federal loan guarantee.

"Look at US Airways. They took concessions and after 10 weeks, they're back for more," Sanderson said.

The IAM acknowledged the division among mechanics. "Each employee measured the costs and benefits of participating in United's recovery plan," says Scotty Ford, president of the mechanics' unit. "In the end, some thought the risk was worth taking, and others felt they had sacrificed enough."

The day before the vote, he urged members to think about United's dire position: "The survival of United may well be in your hands. Our anger at the management team at United should not discourage us from doing the right thing." But now, time is running out.

The loan guarantee is considered crucial to how United will handle a $375 million debt payment due Monday. The carrier has a grace period of an undisclosed number of days, but it is unclear whether it has time to reach another agreement and put it to a vote before it has to decide to make the payment or file for bankruptcy protection.

There are about 1,200 United employees in Hawai'i.