NYTimes.com Article: Union Asks Judge to Appoint Trustee to Run United Airlines

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Union Asks Judge to Appoint Trustee to Run United Airlines

August 12, 2004
 By MICHELINE MAYNARD and MARY WILLIAMS WALSH





Angered by United's decision to stop contributing to
employee pension plans, the machinists' union asked a
federal bankruptcy judge yesterday to appoint a trustee to
run the airline. The union's request added more strain to
the most bitter labor-management conflict the airline
industry has seen in more than a decade.

Appointment of a trustee would be an extraordinary step
that is generally taken only in the case of fraud or clear
mismanagement. It effectively removes a chief executive's
power and often prompts the departure of other senior
managers.

Last month, United, a unit of the UAL Corporation,
announced that it would not make required payments to its
four employee pension plans while it remained in bankruptcy
protection and that it was considering alternatives,
including the termination of the plans.

In a motion filed with the bankruptcy court in Chicago, the
International Association of Machinists and Aerospace
Workers accused United's executives of "gross
mismanagement" and said it was unclear whether the
executives could draft a workable restructuring plan.

"United Airlines' management has thrown away the trust and
respect of its employees," Robert Roach Jr., the union's
general vice president for transportation, said in a
statement yesterday.

"No airline can successfully exit Chapter 11 without
employee support," Mr. Roach said. "This management team
has placed UAL on a collision course with disaster."

The machinists' union also filed a motion against United's
request that it be given four more months to draft a
restructuring plan. United, which filed for bankruptcy
protection in December 2002, has the exclusive right to
file a restructuring plan through Aug. 30. Its exclusivity
has already been extended several times.

Responding to the union's motions, a United spokesman, Rich
Nelson, said, "No amount of highly charged rhetoric or
baseless legal filings will make the difficult issues
standing between United and exit disappear," referring to
the airline's effort to leave bankruptcy protection.

"What we need now are constructive engagement and workable
solutions," Mr. Nelson said.

On June 28, United's application for a federal loan
guarantee package was rejected for a third time, forcing
the airline to find billions of dollars in financing so
that it can leave bankruptcy protection.

United attributed its decision on pensions to the
unwillingness of lenders to finance the airline if its
pension liabilities remained in place. Because of the rise
in oil prices, the airline is facing jet fuel costs that
are nearly $1 billion above its estimates at the end of
2003, forcing it to cut costs.

Nonetheless, the pension move was denounced by the pilots'
union at United, which vowed in an angry statement earlier
this week to use every legal means to fight the airline.
The pilots' union said United could face "years of
hostility and chaos" for halting its pension contributions
unless the issue was resolved.

Meanwhile, United's flight attendants said yesterday that
they had begun a no-confidence vote, through their Web
site, of United's chief executive, Glenn F. Tilton, and the
airline's management.

A spokeswoman for the Association of Flight Attendants,
Sara Dela Cruz, said the union considered the motion by the
machinists' union "appropriate" but would not say whether
her union planned to join it.

United's creditors' committee also met yesterday, but
lawyers for the group did not comment. That group includes
representatives of the pilots, flight attendants and
machinists.

The conflict between United and its unions brought to mind
the last major airline industry battle, at Eastern Air
Lines. In 1990, a bankruptcy court judge appointed Martin
R. Shugrue as Eastern's trustee after unions and unsecured
creditors joined forces to take control away from Frank
Lorenzo, chairman of the Texas Air Group, which owned
Eastern.

Mr. Lorenzo's bid to cut jobs and costs prompted union
walkouts and led to steep losses, driving the airline into
bankruptcy. Despite Mr. Shugrue's appointment, Eastern
ceased flying a few years later.

In contrast to the collective effort at Eastern, the
machinists' union at United was alone in filing its motion
yesterday, which came after two lawsuits filed by the union
against United earlier this month.

In the suits, and in its motions, the machinists' union
contended that Mr. Tilton, Frederic F. Brace III, the chief
financial officer, and other managers had violated their
fiduciary duty to employees. United dismissed the lawsuits
as baseless.

The union's motions will be heard by Judge Eugene C. Wedoff
of Federal Bankruptcy Court in Chicago, near United's home
base, at a hearing on Aug. 20.

Meanwhile, the federal government has until tomorrow to
decide whether to take legal action opposing United's
decision to skip its pension contributions.

Technically, United's move violates federal law, which
holds that companies that offer pensions must fund them
according to a regulated schedule. But because United is in
bankruptcy, government enforcement agencies can do little
to force compliance.

Under federal pension law, the Labor Department can sue
United, but only at the direction of the Treasury
Department. A Treasury spokeswoman declined to comment
yesterday on the department's intentions.

The Pension Benefit Guaranty Corporation, which guarantees
pensions, could also sue. It has criticized United's
failure to make its contributions and is considering a
lawsuit but has not disclosed any decision.

On the labor front, industry experts viewed the dispute
both as a battle between the machinists' union and United,
and a bid by the union to emphasize its influence.

In recent years, the machinists' union has been voted out
at a series of airlines, including United, in favor of a
rival group, the Airline Mechanics Fraternal Association.
In fact, the machinists' union no longer represents United
mechanics, only ramp workers and gate personnel.

By seeking a trustee, "they don't have a lot to lose, but
they can gain back their self-respect," said Gary L.
Chaison, professor of industrial relations at Clark
University in Worcester, Mass.

A spokesman, Joseph Tiberi, said that the machinists' union
was driven solely by a desire to protect United's workers
and had no other motivation.

The appointment of a trustee has taken place only a few
times in the case of airlines that have emerged from
bankruptcy. A court-appointed trustee, Joshua Gotbaum, runs
Hawaiian Airlines, the second to be put in charge there
since June 2003. A bankruptcy court judge took control away
from the management after Boeing Capital led an effort to
appoint an overseer.

During the 1990's, trustees were also put in place at Kiwi
Airlines and Pan American World Airways, both of which have
gone out of business.

However, unions and creditors did not seek a trustee in the
last big airline bankruptcy, at US Airways in 2003, even
though the company and the union engaged in a series of
difficult negotiations on two sets of contract concessions.
US Airways is now trying to win a third set of wage and
benefit cuts on the threat of another bankruptcy filing.

In United's case, Professor Chaison said, the move will put
enormous pressure on the airline, now faced with a labor
dispute that could drive away customers and perhaps even
dissuade lenders from putting money in the airline.

"It chases passengers away pretty quickly," he said. "If
they hear there is a labor dispute, they could go to
another Web page" to book tickets.

Moreover, Professor Chaison predicted the pension issue
could be inserted into the presidential campaign, given
that it addresses deep worker and corporate concerns.

http://www.nytimes.com/2004/08/12/business/12united.html?ex=1093317778&ei=1&en=93eda82b31a3d519


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