Posted on: Tuesday, April 12, 2005
United says it has no choice but to cut pay, pension plans
By Dave Carpenter
Associated Press
CHICAGO — United Airlines CEO Glenn Tilton reiterated the carrier's intent yesterday to eliminate unionized employees' current pension plans and replace labor contracts as necessary to obtain financing so the airline can exit bankruptcy.
Escalating fuel prices have left the airline in no position to compromise on its cutback plans, Tilton said.
United, a unit of Elk Grove Village, Ill.-based UAL Corp., said in a bankruptcy filing yesterday that it intends to replace pensions and tear up collective bargaining agreements with the mechanics and machinists unions if they don't agree to permanent pay cuts and other concessions by a May 11 trial date.
In its filing, the company argued that it has found no alternatives to ending the pension plans and replacing labor contracts. The airline said it "shares its employees' frustration" over having to take the step.
"But the unalterable fact remains that, as the future of one of the world's largest airlines and its 60,000 employees hang in the balance, now is not the time for half measures," United told the court.
Tilton said United is still targeting this fall for emerging from Chapter 11 bankruptcy, but only if it is able to reduce costs enough to satisfy banks that have expressed interest in providing $2 billion to $2.5 billion in exit financing. He characterized contract negotiations as "rigorous."
United has been restructuring under the protection of federal bankruptcy law since December 2002. But it continues to lose money along with the rest of the airline industry because of high fuel prices, low fares and intensifying competition from discount carriers. Analysts project industry losses as high as $5 billion this year.
Tilton said in a speech to the City Club of Chicago that the industry needs to consolidate and, in comments afterward, cited last year's merger creating Air France-KLM, the world's largest airline, as a financial model.
He dismissed as a "false premise," however, the notion that a carrier needs to go under for the industry to improve.
"It's not a matter of US Air or Independence Air going out of business," he told reporters. "That's simply not going to make things better for everyone."
As in previous labor showdowns, the unions representing United's mechanics and other ground workers are threatening to strike if United has its preferred wage and benefit cuts imposed in bankruptcy court without reaching agreements with employees.
The Association of Flight Attendants has also threatened to tear up its own cost-saving deal with United, accusing company leaders of failing to demonstrate that they have cut their own salaries as promised.
United criticized the AFA's threat in its court filing yesterday.
"This latest attempt by the AFA to throw mud in these proceedings should be seen for what it is: a transparent ploy to gain leverage in an effort to halt the necessary termination and replacement of the flight attendants' pension plan."
The mechanics union said it remained committed to reaching a deal with the company.
"We are willing to bargain so that an agreement comes out that's best for both parties," said Richard Turk, a spokesman for the Aircraft Mechanics Fraternal Association. "It's obvious we're going to have to discuss real-world issues and resolve our differences."
The machinists and flight attendants unions did not immediately return calls for comment.
Analyst Ray Neidl of Calyon Securities said there's no assurance that employees will agree to further concessions on top of the ones they've already made. But he said there's no alternative if United is to come up with bankruptcy exit financing.
Neidl also said that "this is the year when things will start changing" in the industry if jet fuel prices remain high, foreseeing either mergers, consolidation or liquidation.
