United Reaches Deal With Union
UAL Corp.’s United Airlines reached a tentative agreement with union leaders on a revised contract for the airline’s mechanics, the only employee group that hasn’t accepted concessions intended to help avoid a filing for Bankruptcy Court protection.
The 13,000 mechanics and cleaners will vote again Thursday after rejecting a previous proposal last week. The revised proposal includes a 7% wage cut.
Meanwhile, the world’s second-biggest airline said it will use grace periods allowed for repayment of some $920 million of debt originally due Monday or earlier, as it awaits a decision on federal aid that could help it avert a bankruptcy filing.
With the grace period, Oak Grove Park, Ill.-based UAL now has until Dec. 12 to repay $375 million in debt securities owed to a German bank.
The company is seeking $2 billion in financing, of which $1.8 billion would need to be guaranteed by the Air Transportation Stabilization Board. A decision from the board could come any day.
As part of its application for the ATSB loan guarantee, and to avoid filing for bankruptcy, UAL sought $5.2 billion in wage and other concessions from its unions. Rejection of wage cuts by the mechanics may unravel the savings plan because concessions by other unions are contingent on all employees participating.
“They should have had this loan wrapped up months ago,” said Darryl Jenkins, director of the Aviation Institute at George Washington University. “It shows just how badly they messed up the process.”
The airline and union leaders agreed over the weekend to let mechanics choose which of their vacation days will be unpaid, a sticking point for many of the workers, the union said. Leaders of the International Assn. of Machinists and Aerospace Workers urged the mechanics to accept the new proposal, including a 7% wage cut.
“It is the final opportunity to avoid bankruptcy and protect against the elimination of our entire collective bargaining agreement,” Scotty Ford, president of the United mechanics district wrote in a letter to union members posted on the union Web site Monday.
UAL shares rose 83 cents, or 34%, to close at $3.28 in New York Stock Exchange composite trading. The stock has dropped 76% this year.
The company’s $200 million of 9.125% notes maturing in 2012 rose 5 cents to about 15 cents on the dollar from 10 cents on Friday, traders said. The notes were as high as 65 cents on the dollar at the start of the year.
UAL Chief Executive Glenn Tilton said last month that the company currently has more than $1 billion in cash.
United’s pilots and flight attendants, as well as the baggage handlers, customer service agents and reservations agents represented by the machinists union, have all approved concessions that are contingent on participation from all United workers and approval of the federal loan guarantee.
The loan guarantee request was made in June and UAL has been making presentations in recent weeks to answer ATSB questions. The board has said it will favor applications that include concessions from workers, suppliers and creditors.
“The mechanics are a sideshow here. The main show is the ATSB,” said UBS Warburg analyst Sam Buttrick, who has a “sell” rating on the company and doesn’t own shares. “It’s pretty much bankruptcy watch at this juncture.”
