CHICAGO – With United Airlines hurtling toward bankruptcy, its flight attendants approved $412 million in wage reductions over the next six years, in a contract ratified Saturday with company management.
The salary reductions are part of a last-resort effort by management to salvage a cost-cutting plan, in the hopes of keeping the financially strapped airline out of bankruptcy court.
Wall Street analysts have been predicting that the embattled passenger jet carrier -- the second-largest in the world -- would soon be forced to restructure under bankruptcy-court protection as its cash reserves continue to dwindle.
The company's grim outlook took a nose dive late Wednesday when its mechanics refused to accept a comparable deal, rejecting a proposed money-saving measure involving $118 million in average annual givebacks. United has reopened talks with the mechanics' union leaders.
Unless that decision is reversed, the flight attendants' agreement -- like the $2.2 billion in concessions from pilots -- won't take hold.
The cost-cutting plan is considered vital to United's application for a $1.8 billion loan guarantee from the federal government. Without the loan guarantee, United has said it would have no choice but to file for bankruptcy.
Wall Street on Friday reacted to the airline's bad news in kind. Shares in United parent UAL Corp. plunged $1.12, or 31 percent, to close at $2.51 in heavy trading on the New York Stock Exchange. The stock has lost 92 percent of its value since before the attacks of Sept. 11, 2001.
United -- which was once the country's top air carrier but fell behind American Airlines in recent years -- has been fighting to reverse multimillion-dollar losses each day since the terrorist attacks. The carrier has reduced service and has laid off 20,000 workers in the face of a weak economy and sharply reduced spending by business travelers.
United said Friday officials have restarted negotiations with union leaders to try to fashion a wage-cuts package that would be palatable to its mechanics -- the last group resisting proposed steep reductions in wages and benefits.
But with hefty debt payments and other challenges looming, there's almost no time left for United to find the financial backing it needs to avoid filing for bankruptcy-court protection from its creditors.
"The mechanics' vote makes bankruptcy virtually inevitable for United and UAL," said credit analyst Philip Baggaley of Standard & Poor's, which downgraded the company's long-term corporate debt rating deeper into junk status.
Other airline experts concurred, and United reiterated its intention to file for protection under Chapter 11 of the federal bankruptcy code if it can't get mechanics to swiftly go along with their roughly $600 million share of a targeted $5.2 billion in companywide labor cuts over five and a half years.
"We need to reach that amount that we already agreed upon (with a coalition of union leaders) if we're going to get a government loan guarantee," United spokesman Jeff Green said.
The Machinists' union said late Friday no formal negotiations had been held. A meeting is scheduled with United officials Sunday to discuss the rejection of the tentative agreement. "We will explore options that allow for District 141-M participation in United's out-of-court recovery," said Scotty Ford, president of the mechanics' unit.
Even if mechanics vote again quickly and opt to accept wage cuts, as their US Airways counterparts did in reversing course this fall, United's application for a loan guarantee was put in jeopardy by Wednesday's vote setback. A ruling is expected any day on the guarantee, which cash-poor United says it needs to obtain $2 billion in private loans.
United's pilots insisted the airline still has a chance to avoid bankruptcy and urged the federal panel to grant the loan guarantees.
"We are convinced that the process for an out-of-court recovery for United Airlines is not over," United's pilots union said in a statement. "We encourage all parties to continue their hard work in solving the open issues."
The airline faces a tough decision on whether it has sufficient cash to make a $375 million debt payment Monday, although under a grace period it could push that back to Dec. 16. Its cash reserves are believed to be around $1 billion and on a pace to run out this winter.
The other impending deadline for United is Dec. 31, when wage-cutting agreements accepted by its pilots and other employee groups expire unless mechanics join the others in ratifying concessions.
The effects of a bankruptcy filing likely would have a profound impact on the airline industry.
A bankruptcy court judge is likely to slash labor and other costs even more severely than United has proposed, prompting cutbacks and new revenue strategies among its competitors. United's employee stock ownership plan also would be endangered, as would workers' remaining investments in the 55 percent employee-owned carrier.
There is likely to be no immediate impact on passengers, however. If it is forced to resort to a bankruptcy filing, United has said it will continue flying its normal schedule — just as US Airways has been doing since its Chapter 11 filing in August.
The Associated Press contributed to this report.