United Airlines won a major victory yesterday when a U.S. bankruptcy judge ordered its resistant machinists union to accept a temporary 13 percent pay cut, eliminating a key obstacle in the carrier's effort to secure $700 million in interim financing it needs to continue operating.
The machinists were alone among United's unions in rejecting wage reductions proposed by the carrier. The airline had agreements with its pilots, flight attendants, dispatchers and meteorologists.
The ruling by U.S. Bankruptcy Judge Eugene R. Wedoff ensures that United will be able to temporarily cut its labor costs by $70 million a month by Feb. 15, one condition set by banks for release of the interim financing. But United still must reduce other costs before it gets the money. United spokesman Joseph P. Hopkins said the ruling enables the airline to pursue cuts with its aircraft lessors and suppliers.
United, which is losing about $20 million a day, last month became the largest airline ever to file for bankruptcy reorganization.
Airline industry executives told a Senate committee Thursday that they don't foresee a return to profitability until 2004. The industry was expected to lose more than $9 billion last year, after losing $7.7 billion in 2001.
American Airlines announced yesterday that it would cut 800 flight-attendant jobs and, on Thursday, Delta Air Lines said it would eliminate 4,000 jobs.
Airline executives and union leaders are closely watching labor relations at United, the world's second-largest airline, as they search for their own approaches to remaining competitive.
In his ruling yesterday, Wedoff agreed with United and its parent, UAL Corp., that changes to the International Association of Machinists' collective bargaining agreements were "essential, at the present time, to continue United Air Lines Inc.'s business and to avoid irreparable damage to the estate."
The union did not respond to Wedoff's order. It posted a memo on its Web site informing its 37,000 members of the pay cuts.
Some union members expressed strong reactions in interviews later in the day.
"I'm still banging my head on the desk," said Joseph Tiberi, a spokesman for the union.
The case lays bare the "politics of the tarmac," said Christopher Cameron, associate dean and professor of law at Southwestern University School of Law in Los Angeles, who has studied how judges handle bankruptcy cases.
Cameron, a former labor lawyer, said the mechanics often feel unappreciated and underpaid for the critical role they play keeping planes aloft. "Machinists see pilots as overpaid bus drivers and think they can give more because they have more to give," he said. "The mechanics' view of flight attendants is that they are overpaid waitresses. These are the politics of employee relations at the airlines, and you only see them come to the surface when airlines are in severe distress."
United's pilots agreed to a 29 percent pay cut, its flight attendants approved a 9 percent pay cut, and its flight dispatchers and meteorologists accepted a 13 percent reduction. Their pay cuts went into effect Jan. 1.
Before United's Chapter 11 bankruptcy filing, the airline's pilots earned an average $190,000 a year, mechanics $76,000, passenger service workers $42,000 and flight attendants $41,000, according to figures compiled by the Association of Flight Attendants.
Wedoff said that to be fair, the machinists' pay would be cut by 14 percent from yesterday through May 1. That would be equivalent to the 13 percent reduction retroactive to Jan. 1 that United was originally seeking.
The temporary wage reductions will remain in effect until the airline reaches new wage agreements with its unions on or before May 1.
"Now that we have received court approval to take the immediate steps necessary to stabilize our cost structure, we can devote our attention to working with our unions on the longer-term imperatives currently facing the company," United chairman and chief executive Glenn F. Tilton said.
Hopkins said that even with yesterday's ruling it was too early to say whether United would reapply for a federal loan guarantee. Last month, the federal government denied the airline's application for $1.8 billion in guarantees.
United plans to emerge from bankruptcy by June 2004. It has already received $800 million in loans from its banks, including Bank One, J. P. Morgan Chase, Citigroup and CIT Group.
Also yesterday, United began eliminating and restructuring some of its unprofitable routes. The airline said it would stop its daily flights to New Zealand in March. United's alliance partner, Air New Zealand, will fly customers who have flights booked after March 27. United also said its nonstop service between Miami and Rio de Janeiro will be replaced with a flight that stops over in Sao Paulo, Brazil, beginning March 12. United's flights from Washington's Dulles International Airport to Sao Paulo will continue to fly on to Rio de Janeiro.