CHICAGO - United Airlines reached tentative agreement yesterday on a new cost-saving contract for its 19,500 ground workers, heading off a potentially devastating strike and vastly improving the airline's chances to emerge from bankruptcy.
The proposed contract with the Machinists union - which still must be ratified by the membership - means United is poised to achieve its goal of saving about $725 million a year by forging new concessionary agreements with all four of its labor groups.
Earlier in the day, the union for United's mechanics, the Aircraft Mechanics Fraternal Association, said its members voted 59 percent to 41 percent to ratify a new five-year contract that included a 3.9 percent pay cut. United's pilots and flight attendants earlier had reached their own new contracts.
"This is a very big deal," said Michael Roach, a principal at Roach & Sbarra Airline Consulting in San Francisco. "What was avoided was potentially the shutdown of the airline, and if it had shut down, it might never have recovered."
The last-minute agreement with the ground workers, United's biggest employee group, came as the airline and the union were headed for a showdown in front of U.S. Bankruptcy Judge Eugene R. Wedoff in a downtown courtroom here.
Wedoff was set to rule on United's request to scrub the Machinists' old contract and impose lower wages and benefits. The union represents United's ramp workers, reservations agents and airport counter workers, among others.
If Wedoff had sided with United, the Machinists union planned to immediately call a strike that analysts said could have grounded the nation's second-largest airline and badly disrupted the U.S. air-travel system.
After days of negotiating, United and the union reached an "agreement in principle" just in time. When their lawyers told Wedoff of the deal, they said it was so recent that they didn't yet have contract documents to provide the court.
In a brief hearing devoid of fanfare or emotion, Wedoff gave both sides until June 17 to iron out the details of their new contract, which would then be submitted to the union's members.
"I'm now confident we can successfully conclude the process and present our members with a tentative agreement worthy of their ratification," S.R. "Randy" Canale, president of the Machinists union's United branch, said in a statement.
United, a unit of UAL Corp., has lost more than $10 billion in the past four years. It earlier had gained concessions of $2.5 billion annually from the workers, but said it required additional pay cuts to raise the $2 billion in new financing needed to end its 2 1/2 -year stay in Chapter 11 bankruptcy protection.
United won another major cost-saving battle last month when Wedoff allowed the airline to hand off its underfinanced pension plans to the nation's pension insurer, the Pension Benefit Guaranty Corp.
With the PBGC agreeing to assume $6.6 billion of United's liabilities, it was the largest corporate pension default in the agency's 31-year history. The shift also will save United - which has about 60,000 active workers and 61,500 retired employees - from having to make $4.4 billion in pension contributions over the next six years.
The Machinists union said its tentative contract with United includes a replacement pension plan for the defined-benefits plan that United terminated and shifted to the PBGC. Canale said the new program would be part of the union's national pension fund.
Roach said that with all the cost savings in place, United should be able to raise the cash it needs from outside investors.
The Los Angeles Times is a Tribune Publishing newspaper.