United Airlines pilots Thursday ratified a new labor pact with a 14.7 percent pay cut and a provision not to oppose termination of their pension plan.
But the agreement must be approved in bankruptcy court, where it has drawn opposition from other unions, creditors and a federal agency. A bankruptcy judge is expected to decide today whether to approve the pact, after hearing arguments from both sides Thursday.
United, which filed for bankruptcy reorganization in December 2002, has said it must cut $2 billion from its annual costs, including $725 million in labor costs by mid-January, to emerge from bankruptcy.
The company has ratified agreements with three unions, but the pacts need to be approved by the court. It got an extension for negotiations with its machinists union but was still in negotiations Thursday with flight attendants and mechanics on cost cuts.
During the hearing Thursday on the pilots’ agreement, attorneys for United and the pilots said the company is in crisis, and the risks arising from their new labor agreement to cut costs immediately are not as great as the risks of not doing the deal.
“We need to deal with real life. This company has been in bankruptcy now in excess of two years,” James Sprayregen, attorney for United parent UAL Corp., told Judge Eugene Wedoff, during a hearing in Chicago. “We can’t do nothing because other people are saying there may be negative effects to this agreement down the line. Whatever the potential negative effects are, are outweighed by the potential negative effects of not doing this deal.”
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He said the pilots’ deal – the first United reached in its current round of cost-cutting – has helped stimulate negotiations with other unions. It would give $180 million in annual savings to the company.
But a string of attorneys representing other United unions, creditors and the federal pension insurance agency said the agreement could cause serious problems for the company and others.
Attorneys for the Association of Flight Attendants and the International Association of Machinists argued that the pilots’ agreement impedes their negotiations with United. They focused on language that requires other unions to agree to give up their pension plans or the pilots union will have the right to terminate its agreement and impose millions of dollars in costs on the company.
If the pilots’ pension plan is terminated, it would be taken over by the U.S. Pension Benefit Guaranty Corp. Pilots then would be paid only basic pension benefits.
Part of the pilots’ plan calls for the company to provide a $550 million convertible bond to compensate them for lost pension benefits. That bond would benefit pilots who retire in the future.
Also Thursday:
Wedoff approved an emergency motion for United’s International Association of Machinists to take a temporary 11.5 percent pay cut and a 30 percent cut in sick pay. The move provides more time for the union and the company to negotiate permanent cost cuts.
Members of two of United’s smaller unions, the Transport Workers Union and the Professional Airline Flight Control Association, ratified agreements with pay cuts and an agreement not to oppose termination of their pension plans, in exchange for a convertible bond and other incentives. The agreements have not yet been approved by the court.
In addition to Wedoff’s ruling slated for today on the pilots’ agreement, a trial could begin on a move by United to reject the existing contracts of its flight attendants and mechanics. Those two large unions have not come to any agreement with the company over wage and benefit cuts.
Staff writer Kelly Yamanouchi can be reached at 303-820-1488 or kyamanouchi@denverpost.com.
