- The Washington Times - Wednesday, May 11, 2005

CHICAGO - UAL Corp. yesterday reported a $1.1 billion first-quarter loss, its biggest in two years, as it embarked on a high-stakes bid to further cut costs by rewriting two unions’ contracts.

The loss was announced a day after a federal bankruptcy judge approved United Airlines’ plan to end employee pension plans, clearing the way for the largest corporate-pension default in U.S. history.

The company has lost $5.8 billion since entering bankruptcy in December 2002.

The first-quarter results were released shortly before the start of what is certain to be a wrangle in federal bankruptcy court over United’s proposal to unilaterally impose new lower-cost contracts on its mechanics and machinists unions. Negotiations have failed to produce agreements, and both unions’ memberships have authorized strikes if the contracts are broken without their consent.

Angry labor unions continued to warn of strikes, although they said they were not taking any immediate actions pending the outcome of talks or bankruptcy court actions involving their contracts.

The International Association of Machinists and Aerospace Workers (IAM) announced that its members had voted by a 94 percent majority this month to authorize a strike if United succeeds in unilaterally imposing new contract terms, as the airline was attempting to do in a potentially lengthy court process that began yesterday afternoon.

“If a contract acceptable to our members is not negotiated, then we will be guided by the direction our members have given, which is to strike United Airlines,” said Robert Roach Jr., general vice president of transportation at the union, which represents baggage handlers and public contact workers.

Strike threats, while rarely carried out, are particularly powerful bargaining weapons in the airline industry because they can put carriers out of business if employees go out for any length of time. Even the hint of a strike can be costly to an airline in terms of lost bookings.

United, a unit of Elk Grove Village, Ill.-based UAL, has contracts in place with its pilots and flight attendants through 2010 but has been unable to negotiate agreements on long-term pacts with the mechanics and machinists unions.

The company resumed talks with the Aircraft Mechanics Fraternal Association yesterday and is set to hold its next bargaining session with the IAM next week. But yesterday afternoon, United proceeded with its contingency plan, appealing to Judge Eugene Wedoff to have the contracts rewritten without either unions’ consent unless deals can be reached in the coming days.

In opening testimony of a trial that could last a week or more, United attempted to underscore its argument that relentlessly high costs leave no option but for employees’ pay and benefits to be cut for the second time in the company’s 29-month-old bankruptcy.

In results released less than an hour before the start of the trial, United said it had a $250 million operating loss for January through March mostly because of continuing high fuel costs. That compares with a $211 million operating loss in the first quarter of 2004.

The net loss of $1.1 billion ($9.23 per share) included two huge restructuring costs: $433 million related to the termination of ground workers’ pensions and $294 million for rejected aircraft leases. The latest loss compared with a loss of $459 million ($4.17 per share) a year earlier. Revenue was virtually unchanged from a year ago at $3.9 billion.

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