This article from NYTimes.com has been sent to you by psa188@juno.com. Mechanics for United Airlines Turn Down Concessions November 29, 2002 By MICHELINE MAYNARD United Airlines' mechanics rejected a proposed package of wage and benefit concessions early yesterday morning, forcing the two sides back to the bargaining table as the world's second-largest airline struggles to avert bankruptcy. The rejection comes as United is facing a critical Monday deadline for making a $375 million payment on debt backed by aircraft, and just as the busy holiday travel season gets under way. United officials said yesterday that they would decide on Monday whether to make the payment, or take advantage of a 10-day grace period. Only hours after the results were disclosed about 1 a.m. yesterday, the airline resumed discussions with leaders of the International Association of Machinists, which represents United mechanics. Officials said they would try to negotiate a new package of concessions that union members could accept. No date was set for another vote. The vote, which surprised even the union's leadership, will hamper the airline's frenzied efforts to pull together the pieces of a reorganization plan in order to win $1.8 billion in federal loan guarantees and avoid a bankruptcy filing. Without concessions from the mechanics, United, a unit of the UAL Corporation, would no longer be able to fulfill the requirements of the business plan on which its loan application is based. The federal Air Transportation Stabilization Board has set no timetable for a decision on United's application, but officials within the industry had said they were expecting a ruling in the next few days. Investors have argued that United would be better off resorting to Chapter 11 bankruptcy protection because it would give the airline an opportunity to attack its labor costs and reorganize its operations. But United's management has insisted that it can get through its financial crisis without resorting to an in-court reorganization, which it fears would be messy, lengthy and tumultuous, as long as it can obtain the loan guarantees and put labor concessions into effect. The mechanics' failure to approve the deal ruined the image that United has been trying to present of an airline whose employees and managers are aligned to fight its problems. United is expected to get some good news today, however, when it completes agreements with a group of a dozen banks that are representing the holders of up to $7 billion in leases on its fleet of aircraft. The refinancing, being organized by European, Asian and American lenders, is expected to save the airline $100 million to $150 million a year over the next five years. Until yesterday, United thought that it had its employees in line behind it as well. Pilots have already approved $2.2 billion in concessions as their part of the $5.2 billion in savings that the airline had promised to secure from its employees, while United's flight attendants will vote tomorrow on a package worth $412 million. Further wage and benefit cuts will come from salaried employees and from management. For its part, the machinists' union leadership had agreed to $1.5 billion in contract concessions. Two of the union locals represented by the machinists, including customer service and reservations agents, approved their portions of the concession package by wide margins yesterday. Their wage and benefit cuts, worth $800 million, would take effect once the airline begins its reorganization. But members of District 141-M, the union local representing the airline's 13,000 mechanics, voted 57 percent to 43 percent against their share of the cuts, valued at $700 million, which included pay cuts of 6 percent to 7 percent, and the loss of four vacation days a year. Their rejection of the cuts means United does not have the entire $5.2 billion in concessions that it told the federal government it could obtain. By early yesterday afternoon, the company and the union had already begun conversations on the next course of action, said Frederic Brace III, United's chief financial officer. "Clearly, we would rather that this had not have happened," Mr. Brace said. "We have a lot to do and not a lot of time to do it in." Reacting to suggestions that the mechanics may have gambled that they could fare better in a future deal, Mr. Brace emphasized that any new package must be for the same $700 million amount negotiated earlier. United still must achieve the $5.2 billion in total labor cost savings that it has identified from its unions, he said. Neither Mr. Brace nor union officials could explain why the mechanics rejected the proposal. "It's a democratic process," said Joe Tiberi, a union spokesman. "Everyone has the right to vote, and the results show the membership's feelings." But relations between the machinists' union and the major airlines have long been stormy. That is true even at United, where machinists hold one of the three board seats reserved for airline employees, who own 55 percent of the airline. "It's old-school union militancy," said David Gregory, a labor law professor at St. John's University in Queens. Before the vote, in fact, the president of District 141-M, Scotty Ford, acknowledged to his members that the accord was "bad," but said a bankruptcy would be worse for employees. In a letter on Tuesday on the union's Web site, he urged the mechanics to set aside their animosity for the airline and approve the package. "The survival of United may well be in your hands. Our anger at the management team at United should not discourage us from doing the right thing," he said. The animosity between the machinists' union and the airlines goes far deeper than just United. This week, machinists at US Airways were infuriated when the airline, which filed for bankruptcy in October, said it would seek another round of concessions on top of those already granted, and shut down a maintenance base in Florida. US Airways machinists had turned down the airline's original request for concessions - a factor in US Airways' decision to seek bankruptcy. Even so, yesterday's rejection by the United machinists "sends a terrible signal," said a banker who has been closely involved in negotiations with various lenders who hold the airline's debt. The banker, who asked not to be identified, said the machinists' action seemed mystifying given the employees' stake in the company. "Shame on them, they're shareholders," he said. And he noted that the action would provide ammunition to United's competitors in their drive to discredit its unions. Indeed, United has spent the last few weeks defending itself against the efforts of competitors like American, Continental, and Northwest. Those airlines have submitted their own analyses of United's business plan to the air transportation board. United has brought in a series of powerful allies, most notably the House speaker, J. Dennis Hastert, to make its case to the Bush administration and on Capitol Hill. The airline has also rounded up support from corporate clients whose employees are frequent fliers on United. On Wednesday, the Business Travel Coalition, representing corporate travel departments and business travelers, sent a letter to President Bush asking him to recommend approval of the loan guarantees. The White House has said it plans to remain neutral in the debate. Kevin P. Mitchell, the coalition's president, held out hope yesterday that rather than reject United's application outright, the air transportation board could give the airline conditional approval, depending on whether United is able to obtain the labor concessions it is seeking. Mr. Mitchell said he feared that without the loan guarantees, United "could enter Chapter 11 with bad feelings among unions and heightened animosity between unions and management." http://www.nytimes.com/2002/11/29/business/29AIR.html?ex=1039578203&ei=1&en=04d3c0c15d73bfcf HOW TO ADVERTISE --------------------------------- For information on advertising in e-mail newsletters or other creative advertising opportunities with The New York Times on the Web, please contact onlinesales@nytimes.com or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to help@nytimes.com. Copyright 2002 The New York Times Company