United Airlines Seeks Cuts from Labor
Reuters
Thursday, August 29, 2002; 7:42 PM
By Kathy Fieweger
CHICAGO (Reuters) - UAL Corp.'s
United said the $2.5 billion annual savings target set for the next six years will better align costs with expected future revenues.
It added the target will also increase its likelihood of qualifying for $1.8 billion in federal loan guarantees from the Air Transportation Stabilization Board.
The airline also said it was initiating several ticketing policy changes as another cost-saving initiative. Those changes include eliminating paper tickets and increasing the accumulated frequent flier miles needed to buy seat upgrades.
As part of the targeted payroll reductions, United said earlier in the day it wants its unionized mechanics and customer service workers to take pay cuts of about 10 percent to help it avoid a bankruptcy filing. The union representing both groups says United needs a new chief executive before serious negotiations can begin.
United asked mechanics for 10.4 percent cuts, or $185 million annually, and customer service, ramp and reservation workers for 9.5 percent cuts, or $265 million a year, according to the International Association of Machinists.
The requests to the two separate bargaining units -- districts 141 and 141-M -- come as United, the No. 2 U.S. airline, prepares to refile an application for $1.8 billion in federal loan guarantees on Sept. 16.
Joseph Tiberi, an IAM spokesman, said the union is reviewing the proposals, received on Wednesday. The union had already rejected 10 percent pay cuts sought by the airline earlier this year.
"We're reviewing it at this point," Tiberi said. "We still believe any discussions about a United Airlines recovery plan should wait until there's a new, permanent CEO in place."
Pilots, meanwhile, said they had also received a proposal from the airline but would not comment on it other than to say they were reviewing it. The Air Line Pilots Association recently deferred a vote on a tentative deal to cut wages by 10 percent in return for stock options and raises later.
A spokesman for flight attendants did not immediately return calls for comment.
United is 55 percent owned by employees, with pilots holding the largest stake at about one-quarter. Both pilots and machinists hold board seats, and have de facto veto power over the search for a new chief executive.
LOSS ESTIMATES A WIDENING GULF
The Elk Grove Village, Illinois-based carrier said it would not comment further on details of its latest cost-cutting proposals.
Shares of parent company UAL fell 23 cents, or 7 percent, to close at $3.05 in Thursday trading on the New York Stock Exchange.
The stock's price has been volatile in recent sessions, falling below $2 a share after the airline on Aug. 14 warned that it might file for bankruptcy this fall if it cannot dramatically cut costs.
James Higgins, an analyst at Credit Suisse First Boston, issued a research note this week saying the likelihood that UAL will file for bankruptcy was high.
"Barring significant progress in the coming weeks that we simply do not believe is forthcoming, we continue to believe UAL has a 75 to 80 percent or greater risk of filing for Chapter 11 protection," Higgins said.
The overall airline sector continued lower as well on Thursday after Goldman Sachs analyst Glenn Engel widened loss estimates for several airlines as revenue stagnates and bookings for September look weak.
For UAL, he now sees a 2002 loss of $28 per share. For the industry overall, he sees losses this year matching last year's $6 billion.
"We cannot determine whether the weak bookings reflect a downturn in leisure demand or caution ahead of the 9/11 anniversary," he said.
The same machinists union representing workers at US Airways Group
"We now regrettably must pursue changes to the mechanics' contract through the bankruptcy court if we are unable to quickly reach a new agreement," US Airways Chief Executive David Siegel said in a statement.