This article from NYTimes.com has been sent to you by psa188@juno.com. United and Union Near Deal December 3, 2002 By MICHELINE MAYNARD CHICAGO, Dec. 2 - United Airlines, struggling to stay out of bankruptcy court, reached a tentative agreement with its machinists' union today on a revised package of concessions in place of one that the workers turned down last week. The union's membership will vote on the modified terms on Thursday, and United, a unit of the UALcoei Corporation, said it would take advantage of a grace period that would allow it more time to make a crucial debt payment that had been due today. But a campaign by rival airlines opposed to federal loan guarantees for United continued, with Continental setting forth a gloomy outlook for United's future. The union that represents the 13,000 United mechanics, the International Association of Machinists, said its members would vote on $700 million in wage and benefit cuts. Though the package has the same economic value as the one that workers rejected last week, the proposal was changed to address concerns about workplace issues and lost vacation time. Separately, the airline said it was taking advantage of the grace period on a $375 million loan backed by aircraft. United said it had delayed the payment, which will now be due on Dec. 16, to wait for a response on its application for $1.8 billion in federal loan guarantees, which it is seeking in hopes of avoiding a Chapter 11 bankruptcy filing. Investors reacted positively to the developments, lifting the price of UAL shares by 77 cents, or 30 percent, to $3.28. The stock regained the ground it lost on Friday, when investors sold after the mechanics voted to reject the first set of terms. But United's competitors, which have opposed the bid for loan guarantees, gave the airline no rest in their campaign to defeat its application. In the latest of a series of documents meant to raise doubts about United's business plan, Continental today released a gloomy outlook for United's financial performance. The forecast, which Continental said was based on the business plan that United submitted to the Air Transportation Stabilization Board, contended that even if United received approval for the loan guarantees, it would run out of cash by the first quarter of 2004 and remain in a negative cash position through the end of 2004. Continental's document also rebutted United's contention that it would return to an operating profit in 2004 and begin repaying the loans in 2005. According to Continental's calculations, United's operations would be unprofitable in every quarter between now and the end of 2004. Continental argued that United's smallest quarterly operating loss, even after receiving loan guarantees, would be $231 million in the third quarter of 2004. It predicted that the losses would swell again by the end of 2004, presumably making it impossible to repay the loans. The analysis did not include the effects of a war with Iraq, which some analysts say could be devastating for the airline industry, depending on its length and severity. Gordon M. Bethune, Continental's chief executive, said in an interview today that the analysis showed that United's restructuring plan was inherently flawed. ``The concessions themselves are not enough for United to be a viable company,'' Mr. Bethune said by telephone from Houston. ``The taxpayers are going to lose this money. All of it will be gone. They do not have a plan that will work.'' Mr. Bethune, whose airline sought bankruptcy protection in 1983 and 1990 before emerging from Chapter 11 in 1993, said no bank would lend money to United based on the business plan it had presented to the loan board. He was sharply critical of United's management, including its chief executive, Glenn F. Tilton, who joined UAL in September after serving as vice chairman of ChevronTexaco. ``These guys are in disarray,'' Mr. Bethune said. ``They don't know what they're doing, and you have a C.E.O. who is clueless as to the machinations of the industry.'' United's chief financial officer, Frederic F. Brace III, vigorously defended the ability of United's management team and said that Continental's assumptions about its finances were incorrect. Mr. Brace said today that Continental had not taken into account the full effect of concessions that United would receive up front from its employees. He also said Continental was being far too pessimistic in its predictions of the airline's future revenue.. ``Any financial person with any degree of competence can make numbers say whatever they want them to say,'' Mr. Brace said in an interview. ``We think their analysis is flawed and would not stand up to scrutiny'' by the loan guarantee board. The board is expected to meet later this week to consider United's application, which was originally filed in June and has since been revised because of a series of questions by the board's three voting members and its staff about the viability of United's business plan. United has marshaled a series of influential Washington figures, including the House speaker, J.Dennis Hastert, a Republican from United's home state, Illinois, to lobby on its behalf. At the same time, Continental, Northwest Airlinescoei and American Airlines have circulated their own documents and arguments against United's proposal. Today, Tim Doke, vice president for corporate communications at American, said United had offered no proof that the concessions sought from its employees would help United get back on its feet. ``The cuts they are looking at from their labor groups really don't solve their long-term problems,'' Mr. Doke said. ``That is an issue the board has to be focused on in doing their analysis'' of United's application. Mr. Brace of United replied: ``We have spent a lot of time, and a lot of effort, putting together a business plan. We would prefer that the A.T.S.B. and their experts review our plan'' and not take assertions by United competitors as fact. Union leaders have joined the airline's management in disagreeing strongly with the rival airlines' previous criticism of the wage and benefit cuts, saying that the $5.2 billion in concessions were urgently needed to help United avoid a Chapter 11 filing. Scotty Ford, president of the machinists' union local that represents United's mechanics, pleaded with members over the weekend to reverse their ``no'' vote. In announcing the revised package this morning, Mr. Ford told workers in a letter that the package offered ``the final opportunity'' for United to avert a bankruptcy filing. ``On Thursday, you will be voting on more than your contract,'' he said. ``You will be voting on the direction of your company, your job and your future. Weigh all options before you vote, and make an informed, educated decision.'' During negotiations with the machinists, which began Sunday and lasted until early today, United insisted that the dollar amount of the new package had to remain the same as the one that was turned down on Thanksgiving Day by a margin of 57 percent to 43 percent. It called for pay and benefit cuts of 6 to 7 percent, depending on job classification, as well as the loss of four paid vacation days a year through 2008. Union officials said workers had rejected the proposal in part because they were upset that they could not choose which specific days would be forfeited. Workers also thought the proposal should have addressed longstanding disputes over what the union terms ``quality of work life'' issues - essentially matters at work sites that involve decisions made jointly by union and management. Such efforts are supposed to encourage teamwork between the two sides. But mechanics and other union members at the airline have long said they do not have control over their schedules, which they say are dictated by management. And many union members have been displeased at what they consider the slow pace at which their complaints are resolved by supervisors. Mr. Tilton, in a letter to Mr. Ford, said he would seek a report from the airline's labor relations department on the workplace issues by June 1. Mr. Tilton disclosed that United's concession agreements with each of its unions call for the establishment of committees to review the way each part of the airline is run. ``Cost savings are necessary if we are to be able to avoid a Chapter 11 filing,'' he said, ``but we must also have management working together with all employees to incorporate employee input.'' Under the revised plan reached today, workers will still give up pay for four vacation days a year and will initially be asked to forfeit all of them during early 2003, when the airline ``faces dire financial circumstances,'' said Peter B. Kain, United's vice president for labor relations. Later on, mechanics will be able to choose which of the four vacation days will be unpaid, with at least two falling in the first half of the year unless a union member has decided to take all of the vacation in the second half, Mr. Kain said. The decision by the union to hold the new vote was followed later in the day by United's announcement on its debt. The company has a grace period of 10 business days to make the $375 million payment on the loans. United has about $1 billion in cash, and it is estimated by analysts to be losing $7 million to $8 million a day on operations. The airline has said it does not want its cash to fall below $700 million to $800 million in case it has to file for Chapter 11 protection. http://www.nytimes.com/2002/12/03/business/03AIR.html?ex=1039931869&ei=1&en=27e3f1769701f7d3 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