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United Posts Loss, Seeks Contract Cuts
Wednesday May 11, 8:25 pm ET
By Dave Carpenter, AP Business Writer
United Reports $1.1B Loss As It Seeks to Further Cut Costs by Rewriting Two Unions' Contracts


CHICAGO (AP) -- UAL Corp. reported a $1.1 billion first-quarter loss on Wednesday, its biggest in two years, as it embarked on a high-stakes bid to further cut costs by rewriting two unions' contracts.
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The loss was announced a day after a federal bankruptcy judge approved United Airlines' plan to end employee pension plans, clearing the way for the largest corporate-pension default in American history.

The company has now lost $5.8 billion since entering bankruptcy in December 2002.

The first-quarter results were released shortly before the start of what is certain to be a contentious trial in federal bankruptcy court over United's proposal to unilaterally impose new lower-cost contracts on its mechanics' and machinists' unions. Negotiations have so far failed to produce agreements, and both unions' memberships have authorized strikes if the contracts are broken without their consent.

United said it had a $250 million operating loss for the first three months of 2005 due mostly to $202 million in additional fuel expenses than a year earlier. That compared with a $211 million operating loss in the first quarter of 2004.

The net loss of $1.1 billion, or $9.23 per share, included two huge restructuring costs: $433 million related to the termination of ground workers' pensions and $294 million for rejected aircraft leases. That compared with a loss of $459 million, or $4.17 per share, a year earlier.

Revenue was virtually unchanged from a year ago at $3.9 billion.

CEO Glenn Tilton said the company's results showed progress on cost-cutting despite the latest loss in a tough industry environment.

"Progress to reduce costs throughout the system has been substantial and we are pressing ahead to further reduce costs and inefficiencies in all areas of the business," he said.

Angry labor unions continued to warn of possible strikes, although they said they were not taking any immediate actions pending the outcome of talks or bankruptcy court actions involving their contracts.

The International Association of Machinists and Aerospace Workers announced its members had voted by a 94 percent majority this month to authorize a strike if United succeeds in unilaterally imposing new contract terms, as the airline was attempting to do in a potentially lengthy court process that began Wednesday afternoon.

Strike threats, while rarely carried out, are particularly powerful bargaining weapons in the airline industry since they can put carriers out of business if employees walk for any length of time. Even the hint of a strike can be costly to an airline in terms of lost bookings.

United, a unit of Elk Grove Village, Ill.-based UAL, has contracts in place with its pilots and flight attendants through 2010 but has been unable to negotiate agreements on long-term pacts with the mechanics' and Machinists' unions.

Top IAM executive Randy Canale expressed optimism that the union and United will reach agreement in the next few days on a contract that members would ratify, even though formal negotiations aren't set to resume until next week.

"We're still communicating and we're in discussions even while the trial is under way," Canale said in an interview outside the courtroom.

United also held daylong negotiations Wednesday with the Aircraft Mechanics Fraternal Association, which presented a new offer to United management, AMFA spokesman Richard Turk said. The talks included a specific offer on a proposed replacement for the defined-benefit pension United is eliminating -- something all unions must now negotiate following Tuesday's court approval to transfer the pensions to the Pension Benefit Guaranty Corp.

The airline proceeded in the meantime with its contingency plan, appealing to Judge Eugene Wedoff to have the contracts rewritten without either union's consent unless deals can be reached in the coming days.

In opening testimony of a trial that could last until May 19, United restated its argument that high fuel costs, decade-low fares and other industry challenges leave no option but to cut employees' pay and benefits for the second time in its 29-month-old bankruptcy.

Attorneys for the machinists and mechanics unions responded that United has negotiated in bad faith throughout the process and is seeking endless concessions.

"There's been sacrifice after sacrifice after sacrifice, and the question is 'To what end?'" said Sharon Levine, attorney for the IAM.

"You're asking for a 25 percent pay cut or more from a work group that's already living paycheck to paycheck," she said, referring to the collective impact of a second dose of bankruptcy wage cuts. "The proposal is not fair and it's not reasonable."

The most outspoken of United's unions concerning pension terminations has been the Association of Flight Attendants, which has threatened to carry out periodic, unannounced job actions to disrupt the carrier's flight schedule. Spokeswoman Sara Nelson Dela Cruz said the union was still reviewing its options Wednesday and was not carrying out any strikes.

http://www.united.com