US Airways Shares Fall as Union Rejects Contract Offer

ARLINGTON, Va. – US Airways' (UAIR) efforts to extract $800 million in cost cuts from its unions and avoid a return to bankruptcy suffered a major setback when a deeply divided pilots union refused to submit a contract proposal to its membership for a vote.

Investors sent US Airways shares down 13 percent, or 30 cents, to $2.05 a share Tuesday on the Nasdaq Stock Market (search).

US Airways has warned that a bankruptcy filing could be imminent in the coming weeks if it cannot cut new labor deals with its unions. A study commissioned by the pilots' union also concluded that bankruptcy loomed as soon as mid-September if the airline could not implement changes to its current operations.

The airline is seeking $295 million a year in cuts from its 3,000 pilots, and $800 million from all its unions as part of an overall plan to cut costs by $1.5 billion a year.

Details of the contract proposal were not made public, but people familiar with the negotiations said they would have required pilots to accept a pay cut of about 20 percent and cuts to their retirement plan of about 50 percent.

Monday night's vote of the Master Executive Council of the Air Line Pilots Association (search) revealed long-simmering divisions within the pilots' union.

A majority of the 12-member council supported sending management's most recent proposal to the general membership for a ratification vote. But the four pilot representatives based in Pittsburgh and Philadelphia, who have taken a tougher stance throughout the negotiations, were able to block a ratification vote under union bylaws because they represent a majority of pilots.

Fred Freshwater, a representative of the Pittsburgh (search) pilots, said Tuesday he is confident that his vote to block a contract vote reflected the views of his constituents.

"The overwhelming majority are telling us to stand tough," Freshwater said.

Pittsburgh has been particularly hard hit by US Airways' restructuring, having lost its hub status earlier this year. The airport will lose nearly half its daily flights once the airline's reorganization is complete.

MEC spokesman Jack Stephan singled out the Pennsylvania representatives for criticism, blaming them in a recorded message to pilots for refusing to "let the membership determine if the proposal was acceptable."

US Airways chief executive Bruce Lakefield, in a memo to pilots Tuesday that was obtained by the Associated Press, said, "I am not prepared to throw in the towel or conclude that we cannot reach an agreement."

But he said Monday night's vote by union leadership left him "just baffled as to why a few of your representatives don't trust you to make the proper decision regarding our proposal."

Freshwater said Tuesday that while he believes management's proposals have gotten worse rather than better in the last week, he still believes the union is receptive to continued negotiations.

"Hopefully we've made our stance clear now, and the company will begin to bargain in good faith," Freshwater said.

But union MEC chairman Bill Pollock, who supported a ratification vote on management's proposal, issued a statement Tuesday afternoon saying "it is unknown at this time whether and when talks will resume."

"I am disappointed that our pilots were not given the opportunity to vote on the latest proposal before the MEC," Pollock said.

Union officials met off and on over the Labor Day weekend to discuss their options before adjourning at about 10:30 p.m. Monday and voting against putting the company's proposal to a vote.

US Airways, which emerged from bankruptcy protection just one year ago, says it needs to cut costs by $1.5 billion a year to avoid a return to bankruptcy and possible liquidation.

So far, none of the airline's unions have reached agreement on a new labor deal. While other unions, including flight attendants, are in negotiations, the machinists' union has refused to enter talks on a new labor contract.

Management had hoped that a deal with the pilots might spur action from other unions. The unions collectively agreed to more than $1 billion in annual concessions as part of the company's bankruptcy restructuring in 2002-03, and pilots were the first to reach deals in those contract talks.