UAL Moves To Void Labor Contracts
United Airlines, in order to stay in compliance with debtor-in-possession financing that has kept it operating during bankruptcy proceedings, this afternoon is expected to file a motion in bankruptcy court to begin invalidating collective bargaining agreements with labor groups. Despite the filing, the world's second-largest carrier has said contracts will remain in place until either new agreements are reached--it has pledged to continue negotiations--or the presiding judge makes a ruling to nullify current contracts. Temporary wage reductions now in place are set to expire May 1. United must secure long-term agreements with all labor groups by that date to meet lender requirements.
Meanwhile, ratings agency Standard & Poor's on Friday said the effects of a war in Iraq, if severe, could force United to violate its second loan covenant test at the end of the month, allowing "DIP lenders to either waive the violation or accelerate their $700 million of loans, potentially causing the airline to cease operations and liquidate." United last week said it expected to have met the first covenant test measuring financial performance through the end of February.
In court documents, United said it had generated positive cash flow in January of approximately $1 million per day, though total losses for the month were about $382 million. The airline also has requested another 180 days to submit its plan of reorganization before other parties can present alternatives. If approved, the change in timeline would push the end of the exclusivity period from April 8 to Oct. 6.
Separately, United CEO Glenn Tilton last week told employees that hostilities in Iraq would prompt the airline to "reduce our schedule quickly, possibly by an initial 10 percent to 12 percent." Having already seen a drop-off in bookings, schedule cuts come even before the first shots are fired, Tilton added.
In other United news, former president Rono Dutta will occupy a seat on US Airways' reconstructed board when the airline emerges from bankruptcy. US Airways is maintaining the March 31 target date for emergence.