Continental Warns It Must Cut Wages Amid Industry Woes Thursday January 6, 1:08 PM EST Dow Jones Newswires Continental Airlines Inc. (CAL) warned of dire consequences if it doesn't get $500 million in wage and benefit cuts by the end of February. In other developments in the troubled airline industry Thursday, pilots flying for UAL Corp. (UALAQ) ratified a tentative new contract that reduces wages and terminates a pension plan. And a federal judge said he would allow US Airways Group (UAIRQ) to reject union contracts and terminate three defined-benefit pension plans as part of the company's effort to cut costs and emerge from bankruptcy-court protection as a low-cost airline. Continental and other carriers have been hurt by high fuel costs, overcapacity and fare wars, and have been trying to slash costs by seeking pay and benefit reductions and work-rule changes, particularly since the Sept. 11, 2001, terrorist attacks devastated the industry. In a document filed with the Securities and Exchange Commission on Thursday, Continental said that failure to achieve the $500 million in wage and benefit cuts by Feb. 28 could leave it with inadequate liquidity to meet its obligations and cause it to lose hundreds of millions of dollars this year. Adding to its woes, Continental has about $984 million in debt and pension payments coming due in 2005, about $500 million more than in 2004, the company said. Without the cost cuts and a reasonable prospect of future profitability, Continental said it can't be certain it will be able to raise additional money through financing, and it may not get its board's approval to take delivery of additional aircraft the airline recently announced. Finally, Continental said in the filing, if it doesn't get the $500 million in cuts, "we may be forced, like many of our struggling competitors, to reduce our fleet, furlough more employees, and obtain larger wage and benefit reductions, and may potentially lose customers and revenue." Houston-based Continental told employees in November about its plan to cut $ 500 million in labor costs. As of mid-December, the airline said it had achieved only $70 million of the cuts by winning concessions from employees in reservations, food service and other groups. Meanwhile, UAL pilots ratified a tentative contract that reduces their wages and benefits. In a recorded message on its Web site, the Air Line Pilots Association said 76.8% of the members who voted on the deal with UAL approved it. The contract is still subject to approval by the bankruptcy court: UAL has been flying with Chapter 11 protection from creditors for about two years. The deal with the pilots union includes a 15% pay cut and an agreement not to oppose the elimination of the pilots' pension plan. In return, United has agreed to increase contributions to a new retirement plan and to issue $550 million in convertible notes once the company emerges from bankruptcy-court protection. The pilots deal, which will save United $180 million a year, has been controversial among other United Airlines employees as well as creditors and others, who have called the deal overly generous. Also Thursday, a federal judge granted a request by United to cut the pay of its machinists by 11.5% even as the union and the airline continue to negotiate a possible final settlement on a new round of permanent reductions. Judge Eugene R. Wedoff of the U.S. Bankruptcy Court for the Northern District of Illinois granted the request without any argument. The machinists, who have indicated they wanted more time to study United's proposals, didn't oppose the motion. Separately Thursday in Alexandria, Va., Judge Stephen Mitchell of the U.S. Bankruptcy Court said US Airways can reject contracts with employees represented by the International Association of Machinists, the one union that hasn't reached a deal with the airline on compensation cuts. US Airways attorney Brian Leitch told Judge Mitchell that the IAM has agreed to send the company's final proposal for ratification to its membership, and the company agreed that even with the judge's decision in hand, it won't impose pay cuts until voting on the proposal is completed. IAM has agreed it won't conduct job actions until the vote deadline, which is expected to be Jan. 21, the attorney said. Judge Mitchell said the decision to allow the contract rejection was difficult, but he wanted to save some jobs rather then lose them all through a collapse of the airline. "I cannot decree labor peace any more than I can profitability," Judge Mitchell said. "The question is will there be any jobs left." The IAM represents mechanics, fleet service workers and maintenance training staff at US Airways. The Association of Flight Attendants ratified an agreement Wednesday, and the Communications Workers of America, which represents gate agents at the airline, ratified a new contract in late December, Mr. Leitch said. US Airways has said it plans to become a low-cost carrier. -Compiled from reports by Elizabeth Souder, Christopher Scinta, Erik Ahlberg, and Chad Clinton of Dow Jones Newswires; and the Associated Press Dow Jones Newswires 01-06-05 1308ET Roger EWROPS