updated 12/17/2004 1:06:01 PM ET 2004-12-17T18:06:01

United Airlines pilots would drop their opposition to the carrier’s much-decried plan to eliminate traditional pensions under a tentative contract agreement approved by union leaders.

The unlikely concession was disclosed by the United branch of the Air Line Pilots Association on Friday, a day after the group’s leadership accepted the new cost-cutting contract agreed to by negotiators earlier this week.

Facing a worsening financial outlook not only at bankrupt United but industrywide, union leaders late Thursday unanimously recommended ratification of the concessionary five-year contract when rank-and-file pilots vote on it early next month.

Pilots will take 14.7 percent pay cuts if it is adopted, on top of the 25 percent to 30 percent reductions already put in place last year when United used the leverage of federal bankruptcy law to shrink its labor contracts. The cash-strapped company was insisting on either 18 percent wage cuts or a combination of other concessions adding up to $191 million in annual savings.

The pilots’ contract could set the tone both for ongoing negotiations with other United unions and at rival airlines.

“By no means is this being characterized as a great deal,” union head Mark Bathurst said in an interview Friday. “Given the circumstances that we face today, this decision ... was the preferred route rather than going through a litigated imposition of bankruptcy court.”

The pilots would receive additional financial considerations in exchange for not fighting the termination of defined-benefit pensions, which United has signaled it intends to eliminate before exiting bankruptcy in mid-2005.

The company, a unit of Elk Grove Village, Ill.-based UAL Corp., would make higher pension contributions than previously envisioned, this time going into a defined-contribution plan replacing the better-paying traditional pensions. More notably, it would give the pilots’ union $550 million in convertible notes that could then be distributed to the 6,400 pilots and sold in the capital market.

The cash would be intended to soften the blow of losing defined-benefit pensions for a group that would suffer disproportionately when that plan is eliminated.

Pilots are not only the company’s highest-paid employee group, they would lose more than their share because of federal regulations that bar them from working past age 60. That is defined as early retirement by the government pension agency that will inherit United’s dropped pension obligations, meaning pension payments can be reduced heavily.

Stephen Presser, the pilot group’s investment banker, called the pilots’ unusual stipulation “a solution that doesn’t entirely overcome that pension loss ... but is designed to substantially lower that loss.”

United, the world’s second-largest airline, has said it needs to impose an additional $725 million in annual labor cuts after already extracting $2.5 billion a year in concessions last year.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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