nited Begins Court Fight Thursday To Alter Union Pacts Wednesday January 5, 5:42 PM EST CHICAGO (Dow Jones)--A storm is brewing that could mean costly delays for United Airlines. The storm doesn't involve thunderstorms or snowflakes but a complicated court battle over the future of the airline's union contracts. Either way, industry experts are expecting some turbulence. In a federal courtroom in Chicago on Thursday morning, UAL Corp.'s (UALAQ) United Airlines will ask Judge Eugene R. Wedoff to cut the salaries of its union employees and terminate employee pension plans. It's the first phase of what looks to be a lengthy and highly contentious trial on the matter. The Chicago airline has already pared $2.5 billion from its labor costs, but said late last year that it needs to wring another $725 million in annual cuts in order to strengthen its balance sheet during its search for exit financing. The trial will apply only to the union groups that have not voluntarily agreed to accept the company's proposed cuts. United has reached tentative deals with the Professional Airline Flight Control Association and the Transport Union Workers, which together represent about 200 employees. But it's the airline's tentative deal with the Air Line Pilots Association that's become the center of controversy in the case. The deal with the union, which represents 6,900 active pilots and 2,100 furloughed pilots, includes a 15% pay cut and an agreement not to oppose the elimination of their pension plan. In return, United has agreed to increase contributions to a new retirement plan and issue $550 million in convertible notes once the company emerges from bankruptcy. United Airlines creditors, a handful of banks and other union groups have voiced their objections to the arrangement, calling the deal overly generous and saying that it may hurt the airline's odds of emerging from bankruptcy. Adding another layer of complexity, Pension Benefit Guaranty Corp., the quasi- governmental agency that insures corporate pension programs, immediately moved to take over the underfunded pilot pension plan in an attempt to reduce its potential liability. The agency says the move saves taxpayers $140 million. That action is also being contested. Three of the company's six union groups as of Wednesday afternoon had not reached an agreement and talks were "ongoing," said United spokeswoman Jean Medina. The flight attendants, one of the remaining groups, has voted to strike if their contracts are altered. As has been the case with other matters in United's bankruptcy case, last- minute deals are a possibility. The process of rejecting collective bargaining agreements in bankruptcy is largely known as "Section 1113," which relates to a specific section of bankruptcy code. In court United must demonstrate to the judge that the cuts it seeks, according to bankruptcy law, are "necessary" to its restructuring and that all creditors and affected parties in the case are treated "fairly and equitably." During the Section 1113 trial, both the airline and the unions will call witnesses to make their respective cases. United no doubt will discuss the highly competitive nature of the airline industry and skyrocketing jet fuel prices. Chief Executive Glenn Tilton is expected to appear as a witness, Medina said. A recent report by Bridge Associates LLC, an independent firm hired to evaluate United's business plan, will play a key role. The firm in a confidential report called the airline's business plan "feasible" but noted certain caveats, according to an executive summary released by United. United Chief Financial Officer Jake Brace at a hearing last month declined to disclose those caveats or any other details of the report. However, such information is likely to come up during the trial. United, which filed for bankruptcy in December 2002, has said that it intends to emerge sometime this year. -By Erik Ahlberg, Dow Jones Newswires, 312-750-4141; erik.ahlberg@xxxxxxxxxxxx Roger EWROPS