SF Gate: UNITED AIRLINES/Chapter 11/Managers, unions discuss concessions/Their goal is to mold a slimmer, nimbler United Airlines

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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
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Copyright 2002 SF Chronicle

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