United Airlines will pay nearly $70 million in retroactive wages on Dec. 15 to 37,000 employees who are members of the International Association of Machinists and Aerospace Workers union.
The scheduled payout helps smooth the way for negotiations over future wage cuts critical to the survival of the carrier, which continued to operate normally on Tuesday.
Failure to make the payment could have antagonized the airline's 13,000 mechanics, who two weeks ago voted against taking a 7 percent wage cut and giving up four days of vacation pay.
The mechanics' vote came a week before the Air Transportation Stabilization Board turned down a request by United for a $2 billion loan, of which $1.8 billion would have been guaranteed. United subsequently filed to reorganize under the federal bankruptcy code.
United also took steps Tuesday to bolster the team that will negotiate concessions from the machinists, pilots, flight attendants and other unions. The unions represent 66,000 of its 83,000 employees.
The airline disclosed in bankruptcy court that it planned to hire the New York law firm of Paul, Hastings, Janofsky & Walker. The firm represented the airline in negotiations last year when its mechanics were on the verge of striking.
President Bush intervened the day before the union was to walk out in December and appointed a Presidential Emergency Board to recommend a settlement. The board sided with the union two months later and recommended that the mechanics, who had not received a pay raise since 1994, receive an average increase of 25 percent.
John Gallagher and Robert Span will lead a team of 17 lawyers from the firm in negotiating new pacts with the airline's five union groups.
Gallagher is well known to the unions. He has attempted to control higher pay being sought by pilot ground instructors at Delta Air Lines and the pilots at Northwest Airlines.
Northwest's 1998 negotiations with its pilots resulted in a 17-day strike that shut down the Eagan, Minn.-based airline. The strike wasn't settled until President Bill Clinton threatened to order pilots back to their cockpits unless they accepted Northwest's pay offer.
United said it also hired a unit of the Chicago law firm of Piper Rudnick to assist in the talks.
United and its unions met Tuesday in Boston and exchanged information in advance of resuming wage and work rule negotiations, but the airline made clear in bankruptcy court filings that it may ask a judge to intervene if no settlement is reached.
"United's labor costs are now the highest in the industry," the company said in its bankruptcy filing. Bankruptcy law permits a judge to modify or abrogate a union contract if it is necessary for a company to survive.
"It is only if these negotiations prove unsuccessful in achieving a consensual restructuring that, as a decidedly last choice, United will seek this court's assistance," the airline said in court documents
Legal observers say it is questionable whether United would survive if it attempted to force wage cuts on its workers.
"You can't make people come to work," said Douglas Baird, a professor who teaches bankruptcy law at the University of Chicago Law School.
Nothing in bankruptcy law prohibits unions from striking or other job actions.
Baird said he doubts that United, technically still owned by its employees, would ask the courts to impose wage cuts.
"By the time the process plays itself out, it could be too late," Baird said. "These people have to reach an agreement on their own, or United will have to liquidate."
The Association of Flight Attendants, which represents 20,000 United workers, expects the negotiations will be successful. "We are going to work diligently with the company to come to an agreement," said spokeswoman Sara Dela Cruz.
The Air Line Pilots Association, which represents 8,600 United pilots, also said it expects to reach a deal. "This is a long process," said Elliot Sloane, a union spokesman.
Almost all carriers are attempting to cut costs by ending unprofitable routes, parking aircraft and laying off workers. American Airlines, for example, needing to cut $3 billion, announced that 1,100 flight attendant positions would be eliminated, and that it is in talks with its unions about wage concessions.
At US Airways, which entered bankruptcy earlier this year, employees gave up $840 million in wages and benefits. Despite that sacrifice, the company was forced to lay off more than 17,000 people.
Only one major American airline has used bankruptcy to break a union contract. That occurred in the fall of 1983, when Continental Airlines imposed emergency work rules that reduced by half the salary and benefit packages of its pilots and announced it would not honor its other union contracts.
"A few months later, Congress passed a law saying you cannot do this unilaterally," said Edward Altman, professor of finance at New University's Stern School of Business.
The bankruptcy code was amended to give authority over union contracts to bankruptcy judges, who are expected to act only in extreme cases. This gives unions protection from companies intent on arbitrarily voiding a collective bargaining agreement, Altman said.
Continental's tactic was temporarily successful. The airline exited bankruptcy in 1986. But its financial problems resumed, and it filed for bankruptcy a second time in 1990. It emerged again in 1993 and is still flying.Copyright © 2014, Los Angeles Times