After a year and a half of failed negotiations and months of arbitration, Alaska Airlines (search) and its pilots have a new contract, the company announced.

Arbitrator Richard Kasher handed the agreement to the airline and the Air Line Pilots Association (search) on Saturday, company spokesman Lou Cancelmi. The agreement goes into effect Sunday.

Dennis Hamel (search), Alaska's vice president of employee services, said the contract included a competitive wage and benefit package for its pilots and would help the company have a better cost alignment with other carriers.

Messages left with the union were not immediately returned Saturday evening.

Terms of the agreement included an approximate 26 percent reduction in pilot wages and higher employee health care contributions, the company said. No changes were made to the pilots' pension or profit-sharing plans.

Contract talks began in 2003, and an arbitrator was called in when both sides failed to reach an agreement by a Dec. 15, 2004, deadline. Sticking points were pay, retirement and insurance.

Alaska Airlines, the nation's ninth largest carrier, employs 1,465 pilots.