- The Washington Times - Friday, November 29, 2002

CHICAGO United Airlines edged closer to bankruptcy yesterday after the airline's mechanics rejected a proposed $700 million in wage reductions.

The International Association of Machinists, District 141M, said its 13,000 members rejected their portion of a $1.5 billion wage-cut deal by a 57 percent margin. The 7 percent wage reductions were to be implemented over 5½ years.

The rejection by the airline's union mechanics is a serious blow to United. The nation's second-largest carrier, based in Elk Grove Village, Ill., and a unit of UAL Corp., said it would immediately begin new talks with the mechanics.

But whether the discussions will bear fruit was uncertain yesterday as United's fate hangs in the balance.

“We intend to achieve the full labor cost savings included in our business plan,” United said in a statement. “Reaching our $5.2 billion target is essential if we are to secure federally backed loans and avoid a Chapter 11 filing.”

The airline, bleeding about $8 million in cash daily, is willing to modify some aspects of the tentative agreement but must have the same dollar amount of concessions from mechanics, according to Chief Financial Officer Jake Brace.

Mr. Brace said in an interview that talks with 141M leadership officials had already begun.

In any case, unless a new deal comes soon, the mechanics' rejection jeopardizes pay-cut agreements achieved by sister unions, including those for pilots and flight attendants, which all said the givebacks were contingent on every single union taking part in the sacrifices. Those agreements will expire Dec. 31 unless all the airline's workers agree to concessions.

Some 24,000 other IAM members, including public-service workers and baggage handlers, part of a separate bargaining unit called District 141, yesterday approved their portions of the cuts $800 million.

IAM spokesmen were not immediately available to comment.

Like other U.S. airlines, United has posted billions of dollars in losses in 2001 after the September 11 attacks and again this year as revenues remained weak.

The airline recently secured agreements for $5.2 billion in wage cuts from its employees, including five separate unions, as part of a financial recovery plan put before the Air Transportation Stabilization Board (ATSB). That is a new federal agency created after the September 11 attacks and charged with doling out up to $10 billion in loan guarantees.

United has asked the agency to back $1.8 billion of a $2 billion loan. It has met with staffers in Washington every week recently after the board said more labor wage concessions were needed than what the airline originally outlined.

Industry experts say a decision from the ATSB will determine the near-term fate of United as it tries to avoid restructuring through the courts.

“The IAM rejection clearly jeopardizes what was already a highly uncertain ATSB application,” said JP Morgan analyst Jamie Baker, adding that “UAL is closer to bankruptcy than ever before.”

Pressure on United to present the government agency with a broad package of labor concessions has intensified in recent weeks. The airline faces a big debt repayment of $375 million Monday for which it needs new capital.

The ATSB has been a tough sell for many airlines some have had their financial plans approved, but others, such as National Airlines, have been rejected and stopped flying after they ran out of money.

The powerful IAM represents a variety of workers at United from mechanics and customer-service agents to baggage handlers and reservation agents. A committee of leaders agreed to the pay cuts only after months of intensive negotiations, having won their first pay raises since 1994 earlier this year.

United faces an imminent bankruptcy filing unless it can persuade the government to grant the loan guarantees very soon as part of the landmark aviation bailout package passed last year. The three-member board wants a viable business plan in addition to the broad labor cuts.

Mechanics, distrustful of management they say has misguided the company in the past, apparently disagreed with the need to cut costs or at least what their participation should be.

“Each employee measured the costs and benefits of participating in United's recovery plan,” said Scotty Ford, District 141M president, in a statement. “In the end, some thought the risk was worth taking, and others felt they had sacrificed enough. We respect both decisions, and this organization will aggressively represent their common interests as this extraordinary situation unfolds.”

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