UAL''s contract tack is no labor of love
Threat to dump contracts increases tension
By Paul Merrion
December 21, 2002
Now boarding, United Airlines Bankruptcy Flight 1113, scheduled to depart on time for an unknown destination.
This week, United begins the final, most arduous leg of its yearlong odyssey to slash labor costs when it asks Chief Bankruptcy Court Judge Eugene Wedoff to scrap its union contracts, a process governed by Section 1113 of the bankruptcy code.
The timing of that move is dictated by United''s tight mid-February deadline to stem losses, and terminating the contracts — or at least the threat to do so — ultimately may prove necessary to rescue the carrier from liquidation.
But this legal maneuver also puts a bludgeon on the bargaining table at the very outset, complicating the delicate task of getting workers to accept deep cuts in pay, benefits and work rules.
They made an announcement that we''re going to war, says Thomas Buffenbarger, president of the International Assn. of Machinists and Aerospace Workers (IAM), United''s largest union. If they were serious about bargaining, they wouldn''t have made that announcement. Now, everything has to be done through lawyers.
It puts everybody in a hunker-down mode, he adds. Anything we say to the company in the form of negotiations can be used against us in the Section 1113 proceeding.
That tone is different from the one taken last week, when the union stated that the Section 1113 filing was not a surprise. The statement was meant to reassure investors and the flying public, says the IAM president.
If nothing else, the Section 1113 proceeding underscores the difficult decisions that must be made now that United is running out of time and its unions are running out of leverage.
Under the terms set by United parent UAL Corp.''s bankruptcy lenders, the airline must start generating positive cash flow by March or face default and liquidation. But a court-ordered termination of its labor contracts could take about six weeks, which means United must start the Section 1113 process sooner rather than later, in case negotiations fail.
In a perfect world, in which we don''t live, maybe it wouldn''t be necessary, says a spokesman for Elk Grove Township-based UAL. It''s a contingency in case we need it.
Under Section 1113, a company in bankruptcy proceedings can ask the court to terminate its labor contracts to help restructure its finances. But the company must first present a detailed cost-cutting proposal to its unions and meet other tests, including a demonstration that it has bargained in good faith. If the proposal is rejected by the unions without good cause, then the judge can terminate or modify the collective bargaining agreements.
While both sides view Section 1113 as a last resort, the history of labor-management standoffs at United Airlines would suggest that it might be needed.
Trusting the judge
Last month, United''s mechanics rejected a 7% wage cut, which IAM leaders backed in a vain attempt to win a federal loan guarantee and avoid Chapter 11. Now, to prevent liquidation of the airline, they are being asked to take a 13% cut in pay and accept outsourcing and other work rule changes that will produce thousands of layoffs. Many aren''t buying it.
They say Judge Wedoff is fair, says Richard Bailey, an aircraft maintenance technician for United in San Francisco. Given a choice between management, the IAM or the judge, Mr. Bailey says he trusts the judge to cut the best deal and that''s how a lot of mechanics feel.
United''s pilots, machinists and flight attendants are reeling from the company''s new target of $2.4 billion a year in annual labor savings, about 2½ times the concessions goal contained in the carrier''s unsuccessful attempt to obtain a federal loan guarantee, which led to UAL''s Dec. 9 bankruptcy filing.
A pilots union official was stunned by the depth of the cuts, which include much greater use of regional jets and changes in work rules that would reduce the number of pilots. A statement by the Assn. of Flight Attendants says the company was overreaching with its initial proposal, adding that it was unnecessary and premature to announce last week that the Section 1113 process would start the day after Christmas.
Nevertheless, between now and mid-February, United and its unions must negotiate much deeper concessions than previously contemplated, or the Bankruptcy Court will decide whether labor contracts should be rejected or modified to keep the company flying.
Labor is going to take the biggest hit, maybe even more than shareholders, because in bankruptcy, there''s a very big chance an airline will fail, says George Hopkins, professor of history at Western Illinois University in Macomb and a specialist in airline labor issues. In the last analysis, labor is playing with the weakest imaginable hand in this.
Settlement eases risk
Yet bankruptcy''s ultimate weapon against recalcitrant unions could also produce collateral damage for management.
You can win the battle but lose the war, says an attorney, who asked not to be named, for Virginia-based US Airways Group Inc., which preceded UAL into Bankruptcy Court last August.
Abrogating a union contract could lead to a strike, which would be fatal for a weakened carrier, he says. The risks are so great on both sides that you''d better settle.
©2002 by Crain Communications Inc.
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Threat to dump contracts increases tension
By Paul Merrion
December 21, 2002
Now boarding, United Airlines Bankruptcy Flight 1113, scheduled to depart on time for an unknown destination.
This week, United begins the final, most arduous leg of its yearlong odyssey to slash labor costs when it asks Chief Bankruptcy Court Judge Eugene Wedoff to scrap its union contracts, a process governed by Section 1113 of the bankruptcy code.
The timing of that move is dictated by United''s tight mid-February deadline to stem losses, and terminating the contracts — or at least the threat to do so — ultimately may prove necessary to rescue the carrier from liquidation.
But this legal maneuver also puts a bludgeon on the bargaining table at the very outset, complicating the delicate task of getting workers to accept deep cuts in pay, benefits and work rules.
They made an announcement that we''re going to war, says Thomas Buffenbarger, president of the International Assn. of Machinists and Aerospace Workers (IAM), United''s largest union. If they were serious about bargaining, they wouldn''t have made that announcement. Now, everything has to be done through lawyers.
It puts everybody in a hunker-down mode, he adds. Anything we say to the company in the form of negotiations can be used against us in the Section 1113 proceeding.
That tone is different from the one taken last week, when the union stated that the Section 1113 filing was not a surprise. The statement was meant to reassure investors and the flying public, says the IAM president.
If nothing else, the Section 1113 proceeding underscores the difficult decisions that must be made now that United is running out of time and its unions are running out of leverage.
Under the terms set by United parent UAL Corp.''s bankruptcy lenders, the airline must start generating positive cash flow by March or face default and liquidation. But a court-ordered termination of its labor contracts could take about six weeks, which means United must start the Section 1113 process sooner rather than later, in case negotiations fail.
In a perfect world, in which we don''t live, maybe it wouldn''t be necessary, says a spokesman for Elk Grove Township-based UAL. It''s a contingency in case we need it.
Under Section 1113, a company in bankruptcy proceedings can ask the court to terminate its labor contracts to help restructure its finances. But the company must first present a detailed cost-cutting proposal to its unions and meet other tests, including a demonstration that it has bargained in good faith. If the proposal is rejected by the unions without good cause, then the judge can terminate or modify the collective bargaining agreements.
While both sides view Section 1113 as a last resort, the history of labor-management standoffs at United Airlines would suggest that it might be needed.
Trusting the judge
Last month, United''s mechanics rejected a 7% wage cut, which IAM leaders backed in a vain attempt to win a federal loan guarantee and avoid Chapter 11. Now, to prevent liquidation of the airline, they are being asked to take a 13% cut in pay and accept outsourcing and other work rule changes that will produce thousands of layoffs. Many aren''t buying it.
They say Judge Wedoff is fair, says Richard Bailey, an aircraft maintenance technician for United in San Francisco. Given a choice between management, the IAM or the judge, Mr. Bailey says he trusts the judge to cut the best deal and that''s how a lot of mechanics feel.
United''s pilots, machinists and flight attendants are reeling from the company''s new target of $2.4 billion a year in annual labor savings, about 2½ times the concessions goal contained in the carrier''s unsuccessful attempt to obtain a federal loan guarantee, which led to UAL''s Dec. 9 bankruptcy filing.
A pilots union official was stunned by the depth of the cuts, which include much greater use of regional jets and changes in work rules that would reduce the number of pilots. A statement by the Assn. of Flight Attendants says the company was overreaching with its initial proposal, adding that it was unnecessary and premature to announce last week that the Section 1113 process would start the day after Christmas.
Nevertheless, between now and mid-February, United and its unions must negotiate much deeper concessions than previously contemplated, or the Bankruptcy Court will decide whether labor contracts should be rejected or modified to keep the company flying.
Labor is going to take the biggest hit, maybe even more than shareholders, because in bankruptcy, there''s a very big chance an airline will fail, says George Hopkins, professor of history at Western Illinois University in Macomb and a specialist in airline labor issues. In the last analysis, labor is playing with the weakest imaginable hand in this.
Settlement eases risk
Yet bankruptcy''s ultimate weapon against recalcitrant unions could also produce collateral damage for management.
You can win the battle but lose the war, says an attorney, who asked not to be named, for Virginia-based US Airways Group Inc., which preceded UAL into Bankruptcy Court last August.
Abrogating a union contract could lead to a strike, which would be fatal for a weakened carrier, he says. The risks are so great on both sides that you''d better settle.
©2002 by Crain Communications Inc.
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