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Airline Industry Turbulent: United's Pension-slashing Pilots' Contract Rejected by Bankruptcy Judge |
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by NYT via Joe Futrelle
Email: futrelle (nospam) shout.net (verified) |
08 Jan 2005
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January 8, 2005
Judge Rejects United's Contract With Pilots
By MICHELINE MAYNARD and MARY WILLIAMS WALSH
CHICAGO, Jan. 7 - A federal bankruptcy judge rejected a contract between United Airlines and its pilots' union on Friday, saying the agreement unfairly forced other unions to join the pilots in letting United terminate their pension plans.
The airline, a division of the UAL Corporation, said Friday afternoon that it had reached a tentative agreement on wage and benefit cuts with its mechanics union, and that it was close to a deal with its flight attendants. United said it hoped to reach agreement with the flight attendants by Monday, when another hearing was scheduled.
The developments came as United was prepared to press its bid in bankruptcy court to set aside the contracts of the mechanics and flight attendants and replace them with spartan terms. United's chief executive, Glenn F. Tilton, was to have been the airline's first witness.
The pilots' contract, which members of the Air Line Pilots Association approved on Thursday, drew unusual opposition from a federal pension agency, United's creditors committee, some of its banks, its other unions and its retired pilots.
The uncommon action by Judge Eugene R. Wedoff was the latest setback for United, which filed for bankruptcy protection in December 2002 and has yet to present a reorganization plan. It was particularly bad news for United's pilots, who had won compensation and several protections in the contract, in exchange for a 14 percent pay cut and other concessions worth $180 million a year.
"This is rare, and it's messy," said Gary Chaison, professor of industrial relations at Clark University in Worcester, Mass.
Last June, a federal loan board rejected United's application for a loan guarantee, forcing the airline to cut its costs even more. At the same time, United said it planned to terminate defined-benefit pension plans covering four groups of employees, including the pilots. By law, United cannot terminate its union plans without the consent of its unions.
In the deal with United, the pilots agreed not to fight such a move, as long as the plans of other employee groups were also terminated.
The pension board said Friday that it was "pleased that an agreement forcing other workers to accept the termination of their pension plans will not be permitted to go forward."
"We hope and trust that any new agreement between the company and the pilots union will not be structured in a way that abuses the pension insurance system."
United and the pilots association said they were "disappointed" by the ruling. United said it considered the contract "fair and equitable."
The two sides must now resume negotiations, but the pilots union said that it could offer "no assurance" that a new deal could be reached. Any agreement would again have to be submitted to the airline's 6,400 pilots for a vote.
United faces another pension battle in Federal District Court in Chicago. There, the pension agency filed a complaint last week, saying the agreement between United and its pilots' union was abusive and constituted legal grounds for the pension plan to be terminated involuntarily.
It asked the district court to consider the plan terminated as of Dec. 31, at the latest, and to name the pension agency the sole trustee.
The pension agency argues that United and the pilots were trying to exploit the insurance program, timing the termination in a way that would cost the program an additional $140 million, beyond the $1.4 billion in coverage the agency expects to pay.
An involuntary pension termination in district court has different legal standards from the type of termination United and the pilots had hoped to achieve in bankruptcy court. In an involuntary termination, the consent of the affected union is not required, so United would be spared the difficulty of having to negotiate a new agreement with the pilots.
That could simplify the process for United, but it would sharply limit the ability of the pilots to trade their pension plan for sweeteners, as contemplated in the rejected contract.
It is highly unusual for a bankruptcy court judge to reject a ratified contract.
Judge Wedoff, who is in charge of the United case, said he took the step with "extraordinary reluctance."
But the judge said the agreement had a series of unacceptable provisions, led by the pilots' ability to dictate that other unions' plans be terminated. That stipulation had drawn a heated outcry from the pension agency as well as unions representing United's mechanics and flight attendants.
Judge Wedoff said that the pilots' union did not have the right to impose terms on United's other unions and that the issue should be the subject of their talks with the airline.
Professor Chaison said the clause showed the determination of the pilots to make a deal that met their best interests, regardless of the effect on other unions.
But he was not surprised by the pilots' action, given the gravity of the airline's situation.
"They're at a stage right now," he said, "where all the unions are on their own, trying to do the best they can under the worst possible circumstances and knowing that it may not be enough."
The judge also objected to a clause in the contract that kept it in effect only if United's management team, led by Mr. Tilton, kept its exclusive right to draft a restructuring plan.
In all, Judge Wedoff said the contract had the effect of "unduly tilting" in favor of the company and the pilots' union. "That seems to me like something a court ought not to approve," the judge said.
The judge did not object to a pledge by United to give the pilots $550 million in convertible notes, once the airline emerges from bankruptcy, which some legal experts say could make it more difficult for the airline to raise the $2 billion to $2.5 billion it needs to reorganize.
Even so, that provision could conceivably remain in a revised pilots' agreement, as long as the sections Judge Wedoff found objectionable were removed, legal experts said.
United did not disclose terms of its tentative agreement with the Aircraft Mechanics Fraternal Association, but its chief financial officer, Frederic F. Brace III, said last night that the deal "met our needs."
Mr. Brace said the airline and its unions had agreed that any new agreements would not deal with pension matters. He said those would be handled in separate discussions over the next 90 days.
Pension savings are not part of the $725 million in concessions that the company is trying to achieve, Mr. Brace said.
Some analysts have said that United may have to increase that number in the wake of the decision of Delta Air Lines this week to cut its fares by as much as 50 percent, and put limits on coach and first class fares. United, like other airlines, matched Delta's fares in cities where it competes with Delta.
Merrill Lynch estimated that the lower fares would cost United $500 million in lost revenue. Mr. Brace said the airline had not figured out the cost and said it was "premature" to speculate on whether deeper cuts might be needed from its unions.
But as long as United remains in bankruptcy, it can return to its unions to ask for more concessions. |
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