updated 6/30/2006 6:25:12 PM ET 2006-06-30T22:25:12

UPS Inc. and its pilots union have reached a tentative agreement on a new contract, which, if approved, would end a stalemate that dragged on for more than three years and included the pilots’ threat of a strike, the union said Friday.

The union said in a statement that the agreement would run through 2011 and must be ratified by the nearly 2,500 pilots at the Atlanta-based company.

Terms of the new contract include an hourly pay raise of 17.7 percent for top captains with at least 12 years of service and higher health care premiums paid by all pilots, according to a person who has seen the agreement but spoke on condition of anonymity because neither side has been authorized to release details.

Pilots at the world’s largest shipping carrier had been making on average more than $175,000 a year, according to the company.

Memphis, Tenn.-based FedEx Corp., meanwhile, remains in talks with its pilots on a new contract, spokesman Maury Lane said, adding that talks have been going on for two years.

The UPS deal “includes immediate improvements to pay as well as percentage increases in future years while also improving pension benefits and work rules,” said union president Tom Nicholson.

John Beystehner, UPS’s chief operating officer and president of UPS Airlines, said the deal that has been negotiated is a fair one.

Word of the tentative agreement comes six months after the union representing UPS’ pilots said it would ask for release from federal mediation so it could strike.

The comments by the Independent Pilots Association were not unexpected after talks between the two sides concluded in December without reaching a deal.

Under the Railway Labor Act, the pilots couldn’t strike while under the direction of the federal mediator. The mediator never released the sides from talks, which apparently continued and were ultimately successful.

The company and its pilot union had been grappling over pay, pensions, work rules and health benefits, among other things.

UPS, also known as United Parcel Service, and its pilots have been in federal mediated talks since June 2004. Its pilots contract became amendable on Dec. 31, 2003, and has remained unchanged since then.

According to the person who has seen the tentative agreement, top captain pay will increase initially from $190 an hour to $223.55 an hour. First officers also will receive raises, and the new contract will guarantee flying remains in the hands of union pilots, the person said.

The company, which had wanted pilots to pay more for their health care, got what it wanted, the person who has seen the agreement said, but declined to release specifics.

A company spokeswoman, Patti Hobbs, declined to confirm or deny specifics of the tentative agreement.

Voting on the new agreement by rank-and-file pilots is expected to be completed by mid-September, the union said.

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