Hope grows for UnitedCHICAGO >> United Airlines and union leaders moved quickly today to set up a second vote by the carrier's mechanics on wage cuts, an important step in its last-ditch bid to avoid a bankruptcy filing.
The mechanics union will take
a new vote on wage concessions
By Dave Carpenter
Under an agreement reached early this morning following day-long talks, mechanics will vote Thursday on the same wage cuts of 6 percent to 7 percent that they voted down, 57 percent to 43 percent, last week. Contract terms on benefits were revised slightly in hopes of a reversed outcome.
The agreement also bought time for United to decide whether to make a $375 million debt payment that would seriously deplete its cash resources. The payment was formally due today, but the company was expected to defer it under a grace period that expires Dec. 16.
United declined comment on the status of the debt payment pending a meeting of its board of directors today at its Elk Grove Village, Ill., headquarters.
The second mechanics' vote gives United another chance to complete its proposed package of $5.2 billion in labor cuts over 5 1/2 years, the key plank of its application for a $1.8 billion federal loan guarantee.
The announcement also gave investors new hope after Wall Street had nearly written off United's chances of avoiding taking its restructuring into bankruptcy court.
Shares in United parent company UAL Corp. closed up 86 cents, or 35 percent, to $3.31 on the New York Stock Exchange. The stock's price was still down from before the mechanics' last vote, which prompted a huge sell-off on Friday.
"United still faces a difficult task in avoiding bankruptcy, but the second mechanics' vote provides the airline with a glimmer of hope," Standard & Poor's analyst Philip Baggaley said in a research note.
Even if the mechanics approve the concessions, he noted, United would still need almost-immediate approval of the loan guarantee from the Air Transportation Stabilization Board. It also would have to swiftly process and draw on the $2 billion private loan that the government's backing would enable in time to make its Dec. 16 debt deadline.
Without the mechanics' approval of concessions, the airline is considered certain to be rejected in its request for a federal loan guarantee. With cash reserves thought to be around $1 billion and fast dwindling, United has indicated it will file for Chapter 11 bankruptcy protection if it fails to get the government's help.
The mechanics' targeted share of the $5.2 billion in labor cutbacks is $700 million. A second vote rejection of that amount would almost certainly sink the entire package, since cost-cutting agreements accepted by United's pilots, flight attendants and other employee groups expire Dec. 31 unless all groups sign on.
The Machinists' union, which represents the 13,000 mechanics and related employees, said the changes from the previous tentative agreement are a pledge from United CEO Glenn Tilton to resolve "quality of work-life issues" and a clarification that employees would be able to select which four vacation days would be unpaid under the proposed deal.
Union president Scotty Ford said those two matters were cited as sticking points by an overwhelming majority of mechanics who rejected ratification last Wednesday.
Asked to specify quality of work-life issues, union spokesman Joseph Tiberi said they include various items for different working locations, including scheduling of shifts, employee input and other matters intended to result in "a better work environment for everybody."
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