- The Washington Times - Saturday, January 11, 2003

CHICAGO (AP) A federal bankruptcy judge yesterday ordered United Airlines' machinists to take temporary 14 percent pay cuts, handing the carrier an important early victory in its quest to sharply reduce labor costs during Chapter 11 reorganization.
The world's second-largest airline, which hasn't made money since 2000, sought the court mandate in order to pacify lenders demanding quick progress in bankruptcy and to gain more time to negotiate new contracts.
Combined with lower interim wages agreed to by United's other four unions, the action will save United about $76 million a month.
The machinists, the only holdouts, had maintained that United didn't disclose enough about its new business plan to justify the short-term cuts, which last until May 1.
Judge Eugene Wedoff, of the Illinois Northern District bankruptcy court, however, sided with the airline, saying in his two-page order that interim pay reductions were "essential" to continue United's business and to "avoid irreparable damage to its estate."
The ruling sets a tough tone for talks on a permanent contract with the union representing the 37,000 machinists including even steeper pay cuts. United signaled shortly after filing for bankruptcy Dec. 9 that it wants to slash companywide labor costs by $2.4 billion annually, or about 25 percent, to be more competitive.
Pilots agreed earlier this week to take temporary 29 percent pay cuts, flight attendants consented to 9 percent wage reductions and dispatchers and meteorologists to 13 percent. Those concessions were contingent upon all unions participating by yesterday.
Without a favorable ruling from Judge Wedoff, United was poised to take the step of starting legal proceedings toward nullifying all labor contracts.
The company now has enough financial breathing room to meet its lenders' requirements until May 1. It has indicated it will hold off on initiating court efforts to have contracts voided a process that takes several weeks until March 15.
Management could ultimately ask the court to impose drastic cuts and new contracts, but alienating its employees risks the airline's survival. Eastern Airlines went out of business in 1991 after its mechanics went on strike rather than accept sharply reduced wages in bankruptcy.
The International Association of Machinists and Aerospace Workers informed its members of yesterday's ruling and specifics of the wage reductions on union Web sites, but did not otherwise comment.
The machinists' pay cuts take effect immediately and equate to 13 percent when applied from Jan. 1.
CEO Glenn Tilton said employees' sacrifices will help reshape United into a strong competitor. He pledged to collaborate closely with unions on permanent contract changes.
"Now that we have received court approval to take the immediate steps necessary to stabilize our cost structure, we can devote our attention to working with our unions on the longer-term imperatives currently facing the company," Mr. Tilton said.
He said further cost-saving measures will be announced later this month for United's management and salaried employees, who had their wages cut Dec. 16.
Standard & Poor's analyst Philip Baggaley said United hasn't lost significant business to other airlines in bankruptcy and should be able to reorganize successfully if it can rapidly cut costs and if fallout from a potential war with Iraq isn't too severe.
Beside pursuing labor cuts, the airline is moving to renegotiate many aircraft financings.
Mr. Baggaley said that while employees' majority ownership will likely be wiped out in bankruptcy, employees might receive some new shares in return for contract concessions as proposed in US Airways' reorganization.
Shares in United parent company UAL Corp. fell 3 cents to close at $1.48 in trading on the New York Stock Exchange.

LOAD COMMENTS ()

 

Click to Read More

Click to Hide