United labor contracts head to court
Published: May 11, 2005 at 4:59 p.m. ET
August Cole
Flight attendants, mechanics mull strike, legal options
SAN FRANCISCO (MarketWatch) -- A day after United Airlines got permission from a federal bankruptcy judge to hand billions in retirement obligations over to the government's pension agency, the Chicago court is set Wednesday to consider the fate of the carrier's union contracts.
The hearing comes as the stakes are rising for the No. 2 airline, whose unionized flight attendants, machinists and mechanics are considering strikes or slowdowns as well as legal options after Tuesday's ruling.
The flight attendants union is not on strike but has cleared the use of labor action in protest of changes to its contract, said Greg Davidowitch, president of the Association of Flight Attendants at United Airlines, in a statement from the union.
For the mechanics represented by the Aircraft Mechanics Fraternal Association, the next steps are being carefully considered.
"So, now the question leads to ... is this the point where we strike the airline?" wrote AMFA Local 9 on its Web site in a message to its members. "The short official answer from AMFA National is no."
Wednesday's hearing in bankruptcy court will find the judge considering whether the airline's union contracts can be rejected. According to AMFA, the trial could run through May 19.
Bill Brandt, CEO of bankruptcy firm Development Specialists Inc., said Tuesday that the threat of a strike is ominous, but not a "doomsday issue."
"I know that United's management would want United's employees to believe that it's the death knell of United," he said. "And I know that United's employees would want management to believe they're prepared to do it. I would hope they negotiate." Watch the interview with Brandt.
For the International Association of Machinists, the union said Wednesday 94% of its members at United voted to authorize their leaders to call a strike at the bankrupt airline. According to the IAM District 141 Web site, the union currently has no plans to go on strike and will return to the negotiating table with the airline next week over the contracts and a replacement pension plan.
Shares of UAL Corp., United's parent, rose more than 4.2% in bulletin-board trading to 99 cents.
After Tuesday's court decision, United UALAQ now can walk away from $6.6 billion in retirement obligations to 119,000 current and former union employees.
The ruling also paves the way for the federal Pension Benefit Guaranty Corp.'s biggest retirement plan takeover yet and will result in lower benefits for thousands of workers. The PBGC caps annual payouts at $45,600 a year.
The flight attendants and mechanics unions have fiercely opposed bringing the PBGC into the picture and have threatened such a move could lead to a showdown with management.
The court decision covers pensions for flight attendants, ground workers, pilots and management and administrative workers. United expects the ruling to save it hundreds of millions of dollars a year.
"Approval of the PBGC settlement agreement is a crucial step forward for the future of United, as it strengthens the financial platform this company needs to attract exit financing and compete effectively," United said in a statement.
The PBGC has assumed a monumental role in the airline industry. It has taken on the pension plans of US Airways UAIRQ, which is in bankruptcy again.
United has maintained that the PBGC handover is an essential step to getting the airline out of bankruptcy. The PBGC is set to gain an equity stake in United on the carrier's exit from bankruptcy. See full story.
Standard & Poor's expects the deal to terminate the pension plans and hand them over to a government agency will help the airline draw investors. "The most important immediate benefit of the terminations is that it will help UAL and United attract financing to exit from bankruptcy," wrote S&P credit analyst Philip Baggaley.
It also gives United an advantage over its rivals, who are still covering their pensions, said Rhett Campbell, partner at Thompson & Knight. "The guys who don't go into Chapter 11 say, 'Gee, why are we being punished?'"
For passengers, David Stempler of the Air Travelers Association, said that the company's employees hold the future of the airline in their hands. For consumers, he said there's no near-term sign of any disruptions and that travelers should go ahead and book travel for the summer. "Don't worry about it at the moment," he said. Listen to the interview with Stempler.
As United Airlines went before the bankruptcy judge Tuesday, a handful of Democrats in Washington sided with the company's flight attendants and mechanics in their bid to stop the airline from terminating the pension plans. See full story.
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