United Airlines Faces Possible Strikes
The last thing United Airlines wants -- a strike -- is looming over the carrier as it tries to emerge from 2 1/2 years in bankruptcy protection.
Two unions -- representing United’s 6,800 mechanics and 19,500 other ground workers -- are threatening to strike if the airline persuades a U.S. Bankruptcy Court judge to annul their contracts and impose another round of wage and benefit cuts.
United plans to seek the court’s help if it can’t negotiate long-term concessions with the workers on its own. They’re still bargaining, but a hearing on United’s request is scheduled to start May 11 in Chicago.
The hearing also would decide the outcome of United’s efforts to jettison most of its employees’ underfunded pension plans, which the airline says it can no longer afford. That move also is being contested by the unions.
United, a unit of UAL Corp., is scheduled to file an update on its efforts with the court today. Among other things, the filing is expected to note that United did reach new cost-saving deals with its pilots and flight attendants in January, but it still needs long-term concessions from the mechanics and ground workers.
Even some of the progress made so far is in jeopardy. On Friday, the flight attendants, who agreed to an additional $131 million of concessions, threatened to terminate the new deal in 20 days unless the airline provides details on givebacks made by salaried employees -- which a United spokeswoman described as “a deliberately disingenuous effort” by the flight attendants “to undermine the cost-savings progress made to date.”
Based in suburban Chicago, United carried 71 million passengers last year and is the nation’s second-largest carrier, behind AMR Corp.’s American Airlines. United also is the busiest airline at the Los Angeles and San Francisco international airports, which are key links to its important transcontinental and U.S.-Asia service. About 4,000 of its 61,000 employees live in California.
United filed for Chapter 11 bankruptcy reorganization in December 2002, after suffering billions of dollars in losses. Like most carriers, United was hit by the plunge in air travel after the Sept. 11, 2001, terrorist attacks.
But even before the attacks, United was plagued by years of management-labor problems, a relatively high cost structure, checkered customer service and costly management missteps.
Under the direction of Glenn Tilton, a former oil industry executive who became United’s chief executive in September 2002, United has been trying to dramatically lower its costs to stop the red ink. The airline has lost $9.7 billion since the 2001 attacks, including $1.6 billion last year.
The overhaul has included extracting repeated concessions from employees -- United’s goal is more than $3 billion in annual labor savings, not including the pension costs -- and paring expenses throughout the airline.
“We are looking at absolutely everything,” and there “are no sacred cows in this process,” Tilton said in a recorded message to employees Friday.
A work stoppage might be fatal to United, which continues to suffer massive losses. A strike also would be a severe blow to passenger traffic and local economies where United has its major hubs, including the West Coast, Chicago, Denver and Washington. In the late 1980s, after mechanics at Eastern Air Lines went on strike, Eastern filed for Chapter 11 bankruptcy protection and less than a year later was grounded forever.
With so much at stake, United and its unions are likely to reach a deal before a strike, said Ray Neidl, an analyst at Calyon Securities in New York.
The workers “really do believe they have given enough,” he said. “But at the end of the day, I think they would come around to reason.”
But the mechanics and other ground workers -- who include ramp workers and baggage handlers -- say they’ve given back enough and would strike even though it could damage the airline.
The mechanics are represented by the Aircraft Mechanics Fraternal Assn., and the ground workers’ union is the International Assn. of Machinists.
“Are we prepared to say all or nothing [with a strike]? Our members say we’re at that point,” said Robert Roach Jr., the IAM’s general vice president for transportation.
“Unless management can come up with a better idea on how to run this airline, we’re prepared to take that step. We view it very seriously,” Roach said.
United has said it believes a strike would be illegal. Should a walkout occur, the airline is expected to immediately seek a court injunction ordering the employees back to work.
Despite their strained relations, United and its employees are running an above-average airline, industry statistics show.
United’s on-time arrival rate averaged 80.1% in February, well above the 77.6% rate for the industry, according to the Department of Transportation.
United’s average load factor last month, or the percentage of available seats filled with travelers, was 83.1% -- the highest March in United’s history and higher than those of American, Delta and Continental Airlines.
That’s partly because United has been shrinking the number of its domestic seats while expanding its international service, where United believes it can avoid much of the heavy discounting that’s causing losses in the U.S. market.
An independent survey of U.S. airline service, released this month, showed that United also was the only “legacy,” or traditional, airline that ranked among the top six carriers in such areas as on-time performance and lost luggage. The others all were low-cost airlines.
At the moment, the mechanics and ground employees are working under a temporary change to their contracts, imposed by the court at United’s request, in which they took pay cuts of 9.8% and 11.5%, respectively. Those temporary terms are set to expire May 31.
United spokeswoman Jean Medina said the airline remained “hopeful we can reach an agreement” on permanent new contracts for those groups either before the Bankruptcy Court acts or before a strike.
United’s situation is complicated by turmoil that surrounds its four major defined-benefit pension plans.
The airline wants the court’s permission to eventually turn over its plans to the Pension Benefit Guaranty Corp., the federal pension insurer.
The unions object because the PBGC insures pensions only up to set limits, which means retirees could see their payouts reduced.
The PBGC in recent months has further inflamed the unions by moving on its own to quickly assume control of the funds covering United’s pilots and ground workers. The PBGC said it wanted to assume the plans before further benefits accrued, thus limiting its future liability.
All of which raises more questions about how soon United can fly out of bankruptcy protection. Said Joe Tiberi, an International Assn. of Machinists spokesman: “We’re not going to have any kind of resolution to any of the other issues unless the pensions are resolved.”
Bloomberg News was used in compiling this report.
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United’s workforce
United Airlines is trying to slash its wages and pension costs as it struggles to emerge from bankruptcy but is facing tough opposition from some of its unions. Here are its four major unions:
*--* Union Members* Workers represented Air Line Pilots Assn. 6,454 Pilots Assn. of Flight Attendants 15,465 Flight attendants Aircraft Mechanics 6,801 Aircraft mechanics Fraternal Assn. International Assn. 19,471 Baggage handlers, counter staff, of Machinists ramp workers and other ground workers
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As of Dec. 31
Source: UAL Corp.
Los Angeles Times
