Bankrupt UAL Corp., the parent of United Airlines, nearly has cleared one of the larger hurdles that had been blocking its path to reorganization now that all labor unions have agreed to the latest round of concessions.
Last week, the Aircraft Mechanics Fraternal Association announced its membership had ratified a new tentative deal, while the International Association of Machinists and Aerospace Workers and UAL reached an eleventh-hour agreement averting a trial in bankruptcy court. Both unions said they were prepared to strike had United used any bankruptcy court-approved motion to unilaterally alter collective bargaining agreements. Instead, United said the newest deals position it to complete a lengthy Chapter 11 overhaul later this year.
Trying to avert its own bankruptcy filing, Northwest Airlines also must come to terms with AMFA. The carrier last week asked the National Mediation Board to declare an impasse in contract talks, raising the possibility of a workers strike or lockout by management.
Evidently beyond such acrimony, UAL and IAM reached an "agreement in principle" that will be scrutinized through next week before being subjected to a ratification vote by about 20,000 workers.
"This agreement, and AMFA's ratification of their agreement, move us significantly forward in our restructuring and set the stage for our exit from bankruptcy," UAL said in a statement. Combined with new deals previously approved by other labor unions and an agreement with the Pension Benefit Guaranty Corp.
(BTN, May 16), "we now have collective bargaining agreements in place with all groups and the resolution of our pension issues."
With an IAM ratification, UAL would achieve the $700 million in additional annual labor cost reductions it identified as necessary for reviving the company during bankruptcy.
In other UAL news, the company must return four Boeing 767 aircraft to lessors after lease negotiations failed to produce an agreement. United said the development would result in "a very limited operational impact," including suspension of Chicago-Buenos Aires flights, effective last week.
The route already had been scheduled for seasonal service reductions in August. United said it continues negotiations on leases for four additional aircraft but, "it is not in the company's best interests to pay above-market rates."
"United may be forced to rethink its business plan again, as lease rates on aircraft have started to move higher," suggested Helane Becker, analyst with The Benchmark Co.
Meanwhile, fresh from its new agreement with UAL, AMFA is headed for a possible showdown with Northwest. NMB has yet to fulfill the carrier's request to declare an impasse in negotiations. Should it do so, the two sides would attempt to reconcile during a 30-day cooling-off period, after which they would be free to engage in self-help: a strike by the mechanics union or unilateral contract changes enacted by the airline, which could then hire replacement workers.
Neither possibility is viewed as likely. "Despite their boastful militancy, we expect a negotiated solution between AMFA and management prior to the expiration of a 30-day cooling-off period," predicted J.P. Morgan Securities analyst Jamie Baker. Baker said Northwest could regain profitability by year-end.