NYTimes.com Article: At 2 Airlines, Management and Unions Focus on Cuts

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At 2 Airlines, Management and Unions Focus on Cuts

February 17, 2004
 By MICHELINE MAYNARD





Unions and management at two troubled airlines are facing
off over cuts that executives say are critical to their
companies' survival.

At United Airlines, the battle is over reductions in health
care benefits for 35,000 retired workers. Executives say
the savings are necessary for the airline, the nation's
second largest behind American Airlines, to secure federal
loan guarantees and emerge from bankruptcy protection as
planned later this year.

Meanwhile, US Airways, the country's seventh-largest
carrier, wants a third round of concessions from its
unions, on top of two granted while it was in bankruptcy.
It sees the wage and benefit cuts as a major component in
its drive to reduce its costs to the level of low-fare
carriers.

The airlines are not being specific about how much they
want from the unions, but both have drawn the ire of labor
groups.

The anger is hottest at United, where flight attendants are
leading a charge to stop the airline from carrying out its
plans, laid out in a bankruptcy court motion last month, to
have retirees pay more for medical coverage.

The Association of Flight Attendants contends that it cut a
deal with United to protect the benefits of flight
attendants who chose to take early retirement by July 1.
About 2,500 left the airline last summer, presuming that
their benefits were protected, the union said.

United, a unit of the UAL Corporation, maintains that there
was no such contractual agreement, only a promise by its
chief executive, Glenn F. Tilton, to avoid health care cuts
unless "absolutely necessary."

In a court filing last week in Chicago, where United is
based, the airline said it had always retained the option
of asking the court to reduce retiree benefits, an action
allowed under the federal bankruptcy code.

A United executive, who insisted on anonymity, said the
reductions in retiree medical benefits were part of the
business plan on which the airline based its application
for $1.6 billion in loan guarantees from the Air
Transportation Stabilization Board. In turn, those loans
would provide the platform for the airline's restructuring.


If United cannot achieve the cuts, it will have to reduce
spending elsewhere by a similar amount, the official said
last week. Any delay in carrying out the cuts will also
delay the airline's emergence from bankruptcy, the person
said.

United, which hopes to exit Chapter 11 protection by June
30, said in the court filing that it hoped to negotiate any
reductions with its labor groups. Nonetheless, the flight
attendants are not letting up. The union said it would ask
a bankruptcy court judge on Friday to appoint an examiner
to investigate the situation.

Meanwhile, United flight attendants picketed at three
airports last Thursday, as United introduced service by its
new low-fare carrier, Ted. The union also won the support
last week of 109 members of Congress, most of them
Democrats, who wrote to Mr. Tilton asking the company to
reverse course.

"Frankly, we are surprised that United Airlines, so close
to successfully emerging from bankruptcy, would risk the
lowering of employee morale and reduction of workers'
confidence in the company," the lawmakers wrote. "Your
decision to seek to take advantage of bankruptcy law in
order to breach your own contractual agreements and cut
these dedicated former employees' health benefits is
extremely troubling."

Despite the outcry, employees do not have much hope of
stopping United, said Gary L. Chaison, professor at Clark
University in Worcester, Mass. "Bankruptcy makes everything
'absolutely necessary,' " Professor Chaison said yesterday,
referring to Mr. Tilton's comments.

He added that there was still plenty of room for bargaining
but that he did not think the union could realistically
keep the company from cutting retirees' benefits. Bankrupt
companies, from steel makers to retailers, have frequently
succeeded over the years to cut retirees' health care
benefits, he said.

Meanwhile, union leaders at US Airways are mulling the
company's request for further concessions that would
represent half the amount by which the airline wants to
reduce its costs.

US Airways, which is based in Arlington, Va., emerged from
bankruptcy last spring. The airline said in December that
it had to rip up its business plan because it was not
achieving results that would allow it to stay in compliance
with $900 million in federal loan guarantees that formed
the basis of its restructuring.

The airline faces a stiff challenge from low-fare carriers,
particularly Southwest Airlines, which will begin service
in May from Philadelphia, one of US Airways' three hubs.

Union leaders initially resisted the airline's bid for a
third round of cuts, declaring that "the concessions stand
is closed." In response, the airline hired Morgan Stanley
to find bidders for a series of major assets, including US
Airways' East Coast shuttle and one of its three hubs,
which include Pittsburgh and Charlotte, N.C., in addition
to Philadelphia.

Though formal bargaining has yet to begin, union officials
met on Feb. 6 with US Airways executives to hear an outline
of what the company was proposing.

US Airways said its overall costs in 2003 averaged 10.22
cents a seat mile, which analysts say is the highest in the
airline industry. Executives told labor leaders that they
wanted to cut costs by four cents a mile, to roughly six
cents a mile, which the airline said was the average cost
for low-fare competitors, including Southwest, JetBlue
Airways and America West.

To help achieve the four cents a mile savings, US Airways
proposed that labor groups grant concessions equal to
roughly two cents a mile. According to the presentation,
employees would grant concessions equal to 0.9 cents a mile
in wages, 0.7 cents a mile in productivity gains and
another 0.4 cents in wage cuts.

The company, for its part, is promising to cut its
operating costs by one cent a mile, its distributing and
marketing costs by 0.4 cents a mile, and other costs by 0.2
cents a mile.

Amy Kudwa, an airline spokeswoman, declined to say what
those savings would yield in dollar amounts. She called the
figures "a broad look at what we would need."

As at United, US Airways' unions may not have much chance
of fighting off more concessions, if they hope to see their
airline remain in operation. Said Professor Chaison: "I'd
hate to be a union officer now, having said 'never' so many
times."

http://www.nytimes.com/2004/02/17/business/17air.html?ex=1078029201&ei=1&en=a10c937832178b2c


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