=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SF Gate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2002/12= /11/BU177119.DTL ---------------------------------------------------------------------- Wednesday, December 11, 2002 (SF Chronicle) UNITED AIRLINES/Chapter 11/Managers, unions discuss concessions/Their goal = is to mold a slimmer, nimbler United Airlines George Raine, Chronicle Staff Writer Senior managers for United Airlines began discussions with union leaders Tuesday about revisions in labor contracts that they say will be necessary to transform the carrier into a smaller, leaner, more flexible competitor. Management and labor met in Boston for the first of many such sessions as the nation's second-largest airline begins to navigate a complex course in bankruptcy court. United sought shelter there Monday after the federal Air Transportation Stabilization Board rejected its application for a $1.8 billion federal loan guarantee. Union officials, usually voluble and at odds with management, had little to say about United's presentation except that they want to help the carrier succeed. United's chief executive, Glenn Tilton, then continued his westward tour of United hubs, traveling from Chicago to Denver and Los Angeles, meeting with employees and passengers. He will be in San Francisco and Washington-Dulles today to share "his vision as he comes into contact with passengers, thanking them for flying United and reassuring them," said Chris Brathwaite, a United spokesman. United was more precise about its task ahead in a filing in bankruptcy court. It said it plans to eliminate stations such as previously announced Caracas, Venezuela; Santiago, Chile; Dusseldorf, Germany; and Milan, Italy -- reductions that will enable United to retire some 50 planes. United also is seeking bankruptcy court approval to reject a number of real property and aircraft leases and to abandon a number of mortgaged aircraft. It is also seeking concessions from United Express partners, including Air Wisconsin, Atlantic Coast and Sky West. All facets of its business are being examined, United said in its filing, including source purchasing for parts, which may save $100 million to $200 million; the elimination of corporate discounts for leisure class fares; revised ticket upgrade prices and policies; and stricter enforcement of ticketing and price rules for advance-purchase and other discounted fares. United, which said it is losing more than $20 million per day, said that wages, benefits and work rules of its unionized employees represent 40 percent of its total operating costs. Noting its labor costs are the highest in the industry, the company said it pays its pilots $1 million more per day than American and Delta pay their pilots. Economic realities are forcing change -- and very possibly resistance fr= om organized labor -- throughout the airline industry. American Airlines on Friday asked its employees to forgo scheduled pay increases in 2003 and said labor agreements must be restructured. On the same day, the chief executive of the primary lender to US Airways said he would liquidate the airline if unions refuse a request for some $200 million in additional wage and benefit concessions. American Airlines Chief Executive Officer and Chairman Don Carty said the savings from not paying wage increases, about $130 million, will help buy time "to find the additional $2 billion in permanent, annual structural changes needed to survive." Beyond survival, American's goal is an annual cost-savings of $2 billion to $3 billion, said Carty, noting wage concessions will be necessary. Meanwhile, unions are being guarded in comments about the industrywide economic pressures at United and elsewhere. Greg Davidowitch, president of the United chapter at the Association of Flight Attendants, vowed to help the carrier through its difficult patch. He added: "This process will mean further cuts to our contract and a bigger strain on our families. But we will face these challenges head on. We know and management knows what happens when a carrier fights with its workers in bankruptcy. There are enough former Eastern Airlines employees in our ranks to remind us of that." In August, United presented to its unions a proposed recovery plan calli= ng for $9 billion in employee cost reductions over six years. A coalition of United's unions responded with a proposal for $5 billion in concessions over five years. Now, United will be more aggressive than ever in its quest for deeper cuts. In another brief filed in bankruptcy court on Monday, United said a group of lenders that agreed to provide $1.5 billion in financing demanded "significant additional cost concessions." "The business plan upon which United's proposed (financing) terms ultimately were based contain substantial cost reduction initiatives far beyond those proposed to the Air Transportation Stabilization Board," it said. The problems that have beset the airline industry are the results of "20 years of misadjustments to the market" in the post-airline deregulation climate, said Pablo T. Spiller, a professor of international business and business and public policy at the Haas School of Business at UC Berkeley. United tried to become the company for "everybody, everywhere, an approa= ch that requires tremendous variety of equipment across different markets," said Spiller. Compounding these problems are "restrictive labor practices, inflexible labor rules," which imply much higher costs, he said. And -- except for a few boom years in the 1990s -- United and other carriers had significant losses during the past decade, he said. "United needs to substantially restructure and try to be less of an airline for everybody, everywhere. Maybe it's better to be a good airline for a smaller group -- an excellent airline, but not for everybody," Spiller said. E-mail George Raine at graine@sfchronicle.com.=20 ---------------------------------------------------------------------- Copyright 2002 SF Chronicle