CHICAGO – United Airlines (UAL)' bid to gain employee backing for drastic cost cuts in bankruptcy got a twin boost Friday when mechanics tentatively agreed to a contract and pilots overwhelmingly ratified separate concessions.
Combined, the two pacts would lower the bankrupt carrier's labor costs by $1.45 billion a year through 2008 — $349 million from mechanics, $1.1 billion from the higher-paid pilots.
Chief executive Glenn Tilton touted the completion of initial or final agreements with all unions as an "extraordinary" achievement for United, which has a history of labor turbulence.
Even if all the accords are ratified, the airline faces a struggle to restructure and meet its lenders' strict requirements in bankruptcy during the industry's worst-ever slump, compounded recently by the war in Iraq the SARS virus.
But the overhauled labor contracts would significantly lighten United's burden as the airline with the industry's highest labor costs and buy time for it to become more competitive with lower-cost carriers.
"It's exceedingly positive," Denver-based airline industry consultant Michael Boyd said of United's reaching cost-cutting agreements with all unions. "It repostures their cost structure so they can do some things going forward. It's just unfortunate employees have to pay for that."
United's newest announced six-year pact calls for 13 percent wage reductions, new work rules and a 20 percent co-pay on health insurance for its 12,000 mechanics and aircraft cleaners, who will vote on it April 29. It also would enable United to outsource much of the work they perform — something the union has long resisted.
The contract would lower company costs by a total of $2.09 billion through 2008 — a sizable portion of the $15.4 billion in total labor savings United seeks over that period.
Hours after the mechanics' deal was reached, the pilots' union announced its members had voted by an 82.3 percent majority to ratify a March 27 agreement reducing their pay by 30 percent and making further cuts through changed work rules. Just less than 82 percent of the more than 8,000 eligible pilots voted.
The union representing United's 173 flight dispatchers also ratified a six-year contract Friday.
Because of United's advantage under Chapter 11 bankruptcy laws, the unions' negotiators felt they had little choice but to agree.
Without agreements, bankruptcy court hearings were set to begin Monday on United's motion to void the contracts May 1. United can still have its own wages and work rules imposed in bankruptcy court starting on that date if the ratification vote fails.
"From the moment United Airlines declared bankruptcy on Dec. 9, a painful restructuring was inevitable," said Scotty Ford, president of IAM District 141-M representing the mechanics. "Despite proposed changes to pay, benefits and working conditions, this agreement preserves the essential value of a job at United Airlines."
Keeping United in business also is the pilots' top priority.
"The pilots of United Airlines have now stepped up for their share of commitment necessary to save this company in the face of the worst crisis in airline history," said union leader Paul Whiteford. "This agreement allows the company to reorganize under Chapter 11 and emerge as a viable, competitive airline against both low-cost carriers and other network carriers."
Even though United could force through its own contract changes in bankruptcy court, the airline wanted to reach consensual deals to avoid a recurrence of labor trouble, which could be fatal for its reorganization. Already, the airline has faced substantial resistance to its plans to shift 30 percent of its flights to a new low-fare, lower-paying carrier, codenamed Starfish.
"Achieving tentative agreements with all of our unions is an extraordinary accomplishment for United," Tilton said. "With all of our labor groups aligned, I feel confident that United's transformation into a more efficient, effective airline, able to compete across markets and product lines, is on track to succeed."
He praised the mechanics' negotiators for working to reach a collaborative plan and the pilots and flight dispatchers for making "tough choices and sacrifices."
Flight attendants, baggage handlers and public contact workers also are voting this month on contract changes.
Approval by the more militant mechanics group remains less assured. Last November, they rejected a plan to contribute $1.5 billion in wage concessions that were part of United's effort to stay out of bankruptcy. The company filed for bankruptcy less than two weeks later.