UAL Strikes New Mechanics Deal With Ch. 11 Filing In Question

United Airlines today confirmed it reached a new tentative contract agreement with the International Association of Machinists District 141-M, the union that voted last week to reject an earlier labor cost reduction proposal. The union's rank-and-file is scheduled Thursday to vote on the newest pact, which addresses quality of work-life and vacation issues and is crucial to United's efforts to gain $1.8 billion in federal backing for a $2 billion loan. That loan guarantee, still being deliberated by the Air Transportation Stabilization Board with no announced timetable, seemingly is United's last chance to avoid a Chapter 11 bankruptcy reorganization.

"The District 141-M Executive Board strongly recommends ratification, as it is the final opportunity to avoid bankruptcy and protect against the elimination of our entire collective bargaining agreement," said IAM District 141-M president Scotty Ford in a statement this morning.

United management has secured concessions from the airline's other unions as part of a framework agreed to by union coalition leaders calling for $5.2 billion in labor cost reductions over five-and-a-half years.

"It remains critical for the mechanics union to live up to its commitment to labor cost reductions. There can be no doubt that the mechanics union vote was a blow to our cause with ATSB," said United CEO Glenn Tilton in his latest message to employees.

Meanwhile, a $375 million United debt payment was due today, though the company has a 10-day grace period to settle the debt. At press time, there was no word on any United decision to immediately make the payment; the UAL Corp. board reportedly is meeting today to make such a determination.

Should the company settle the $375 million debt, it will have a dramatic impact on cash reserves, currently reported at about $1 billion but dwindling daily. "The mechanics negotiations are key and the debt payment is key," said WorldTravel BTI president Danny Hood. "United probably has enough cash to get through the winter, but after that they will run out and may have to file."

Hood added that Atlanta-based WorldTravel BTI has not seen a trend of people booking away from United. "In any other industry, you would see something like that, but there have been airlines that have filed for Chapter 11 and people are used to it," he said, citing US Airways.

In this week's employee hotline message, Tilton insisted United will move forward, either outside of court or from within. "A Chapter 11 filing would be significantly more challenging for our employees and to manage overall. The process up until today has been cooperative. After a filing, that may change," he said. "Our competitors would use this situation to create confusion for our consumers and spread harmful information."

In fact, United's rivals already have been active in lobbying against ATSB loan guarantee approval, citing deficiencies in United's business plan. However, a United bankruptcy could start a chain reaction impacting the nation's biggest airlines.

"All of the Big Six have done their paperwork and could file on a moment's notice," Hood said. "They each would have to ask themselves if it is too much of a cost advantage to give up in the short run."