United Airlines is embroiled in disputes with unions and creditors as it nears a key deadline in its 25-month-old bankruptcy restructuring, running the risk of labor actions that could endanger its future.
The confrontations reflect United’s high-stakes maneuvering to raise enough cash to exit Chapter 11 bankruptcy protection without alienating its work force — already disheartened by the need for two substantial pay and benefit cuts in two years.
“If you’re United and you’re trying to get people back in your planes, this is not the position you want to be in,” said George Novak, an airline industry researcher at George Washington University’s Aviation Institute.
The carrier’s push to tear up employees’ existing contracts, if necessary, in order to lop $750 million off annual labor costs by mid-January is headed for a courtroom showdown starting Friday unless three of its biggest unions agree to new terms by then.
Negotiators for the mechanics’ union were nearing a tentative contract agreement with the company on Wednesday, according to a union leader. But no formal negotiations were scheduled involving baggage handlers and public contact workers, and talks continued without an agreement with the flight attendants, who have promised periodic strikes if United breaks their contract.
Additionally, some unions have joined with creditors and banks to oppose the contract agreement crafted by United and its pilots, who agreed not to fight the company’s elimination of traditional pensions after receiving extra financial considerations.
In objections to be aired in bankruptcy court Thursday, they have denounced that plan as an effort to short-circuit the pension deliberation process.
United, a unit of Elk Grove Village, Ill.-based UAL Corp., plans to have CEO Glenn Tilton testify in bankruptcy court Friday on the need to slash wages and benefits further and eliminate defined-benefit pensions after 4½ years of steep losses. It says record jet fuel costs, the glut of airline capacity and air fares at a 12-year low have forced its hand.
“The decisions we’ve made have been very hard, but they have been necessary,” Tilton told employees in a recorded message Tuesday. “The fundamental economics of this business are inarguable. You have to cover your costs even when customers do not want to pay as much for air fares as they once did.”
While most employees don’t question the legitimacy of the industrywide financial crisis, whether they want to keep their jobs for sharply reduced pay remains an open question.
“Many mechanics are on the edge of financial distress” after the last pay cut, said Joe Prisco, president of Local 9 of the Aircraft Mechanics Fraternal Association. “A lot of people are saying ’I’m not going to vote for anything that has a pay cut.”’
Prisco, an observer at Wednesday’s bargaining session in suburban Rosemont, said negotiators appeared to be near a tentative agreement but there is no assurance that members will ratify it. The deal being discussed would slightly reduce United’s initial demand for $101 million in annual concessions from the mechanics, through a combination including lowered wages and benefits.
AMFA will not recommend a “Yes” or “No” vote, the union official said.
“We want to give our people choices so they’re not boxed into a corner,” Prisco said. “Your choice may be take this bad medicine that you don’t want to take, or possibly strike or take some other action.”
Joseph Schwieterman, a transportation expert and economics professor at DePaul University in Chicago, said the flight attendants’ recent 88 percent majority vote to authorize a strike if needed “sets an ominous tone” for United in the labor battles.
“There’s a high risk that there will be some sort of service disruption as the company goes through this tumultuous period,” he said. “Emotions are so high that even pockets of resistance could ripple through the system.”
Most analysts see United as having little choice but to seek the lower-cost contracts. But the final outcome is less assured than in 2003, when United used the leverage of federal bankruptcy law to obtain new contracts calling for double-digit pay cuts companywide and lowering labor costs by $2.5 billion annually.
“They’re getting pretty close to squeezing the last drop out of workers,” said Douglas Baird, bankruptcy professor at the University of Chicago Law School. “At some point, they’re going to have stop squeezing. ... We’re getting close to the crunch point where people are really thinking about walking.”
Bankruptcy Judge Eugene Wedoff has scheduled the contract hearings to continue through next week if needed. He has indicated he likely would rule by Jan. 21 on United’s motion to break the contracts and impose its terms.