United Airlines bought itself a little breathing room yesterday in its bid to stave off bankruptcy, reaching a new agreement with the leadership of its mechanics union and exercising its right to delay payments on $920 million in debt until Dec. 12.
An earlier deal with the International Association of Machinists to cut wages had been voted down by the membership, but union leaders hope to win approval for the revised accord when union members vote Thursday.
Meanwhile, United was supposed to pay $375 million in near-term debt yesterday. If the airline can make the payment within a 10-day grace period, it will be able to put off until 2007 paying an additional $500 million based on a previous agreement with a German bank and key debt holder. If it cannot make the payment, the full amount is due.
United said yesterday that it was already past due on a Nov. 28 debt payment of $45 million. United spokesman Jeff Green said the airline was operating within a grace period for that payment, but he said it was not clear when those extensions expire.
"United believes that taking advantage of these grace periods is a fiscally prudent step in light of its current financial situation," the airline said in a statement. "The company intends to rely on grace periods included in future debt obligations until its financial situation is clarified."
By delaying payment, United signaled it is running out of time to secure $1.8 billion in federal loan guarantees. United's application is still pending with the Air Transportation Stabilization Board, the federal body overseeing the applications. Without the loan guarantee, United executives have said, the airline will have to file for Chapter 11 bankruptcy protection. In its statement yesterday, the airline said it plans to make its payments if its loan guarantees are approved.
Sources close to the ATSB said a decision could be made before the end of the month. Meanwhile, time is fleeting for the nation's second-largest airline, which is losing about $8 million a day. At the end of the third quarter, United had about $1.65 billion in cash. The airline lost a record $2.1 billion last year.
While it seeks to obtain the loan guarantee, United must first win over the membership of the mechanics union. Without the mechanics' agreement, United's cost-cutting deals with its other unions would be voided. For several weeks, United executives have been involved in an aggressive campaign to reduce labor costs by $5.2 billion a year over 5 1/2 years.
Last Thursday, 57 percent of United's mechanics surprised the union's leaders by voting down an initial cost-cutting agreement. That deal called for $700 million in pay cuts, reducing mechanics' pay by up to 7 percent, and required that their first four vacation days each year be unpaid.The new deal provides that, starting with the second year of the contract, employees can pick which four vacation days would go unpaid. Also, United agreed to examine quality-of-life issues, such as the number of days the mechanics would work a week. United executives agreed to follow up with the unions on changes by June 1, 2003. Also as part of the agreement, Glenn F. Tilton, the chairman and chief executive of UAL Corp., United's parent company, promised to consult with the mechanics on his plans for turning around the airline. Some union leaders said they were angry that previous executives did not consult with them prior to implementing changes at the airline.
But some United mechanics said they still plan on voting against the new agreement. Mike Zazzero, a lead mechanic for United at Dulles International Airport, said he was against giving up four of his vacation days. Zazzero, who has worked for United since 1984, said he wanted more than "just more promises" in the contract.
"They're giving us nothing. They want the largest pay cut out of the mechanics, and all we're getting is a promise to talk after we sign the contract," he said. "We've been talking for years."
Wall Street applauded the new deal. Shares of UAL closed at $3.28, up 83 cents, or nearly 34 percent.