=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SFGate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/c/a/2005/06/01/BUGDLD17TM= 1.DTL --------------------------------------------------------------------- Wednesday, June 1, 2005 (SF Chronicle) United contracts vital to airline/Agreements with mechanics, machinists uni= ons saved it from collapse, analysts agree David Armstrong, Chronicle Staff Writer United Airlines hasn't yet done everything it needs to do to exit Chapter 11 and return to profit, but it took important steps toward that goal by forging agreements with two unions on Tuesday, airline industry analysts said. Agreements announced with the Aircraft Mechanics Fraternal Association, which represents 7,000 United mechanics, and the International Association of Machinists and Aerospace Workers, which represents 20,000 United reservations agents, ramp workers and others, enabled parent company UAL Corp. to "avoid the liquidation of the airline," said Kevin Mitchell, chairman of the Business Travel Coalition. United is the dominant airline at San Francisco International Airport, with more than 400 daily departures and about 10,300 Bay Area employees. Nationwide, United workers agreed to $1.5 billion in wage and benefit concessions even before the new pacts, which specify an additional $700 million in givebacks per year from six major unions and UAL management. If the latest pacts had not been worked out after marathon talks and the threat of a Bankruptcy Court ruling on this issue, the unions might have followed through on threats to strike the bankrupt carrier. And if that happened, "it would have been game over," Mitchell said. "United is so fragile, it probably would be enough to push it into liquidation. " "This is probably the best that can be done in what appears to be a permanent low-revenue environment," said Mitchell, whose organization represents corporate travel planners. "Very broadly defined, competition between the airlines will now be about the quality of customer service." The labor pacts give United a chance to emerge from Chapter 11 as a fair= ly strong competitor, said Michael Allen, an analyst with Back Aviation Solutions, an airline consultancy near Washington. "This agreement is a very good thing," Allen said. "United is looking to come out of bankruptcy by the end of this year, and it is beneficial to have labor aboard. This is no time for major disruption." With about $2.2 billion in annual concessions from employees, UAL may ha= ve exhausted this option. Still, the lower cost structure that has resulted should help United compete with other fragile airlines, especially the proposed merger between America West and US Airways, which is also in Chapter 11, said David Stempler, president of the Air Travelers Association. "This is quite a strain for United's employees," Stempler said of the latest givebacks, "but it's a way for United to move forward into the future." In addition to cutting costs, United "will also probably need some investment," Stempler said, adding that investors would be more likely to be attracted by its lower cost structure. Additionally, UAL Corp. needs to win back passengers who might have book= ed with other airlines when strike talk intensified, and to renegotiate some aircraft lease terms, said Douglas Baird, a University of Chicago bankruptcy law professor. United also needs to have enough cash to pay for jet fuel, with crude oil prices hovering at a historically high $50 per barrel, he said. Bloomberg News contributed to this report.E-mail David Armstrong at davidarmstrong@xxxxxxxxxxxxxxxx -------------------------------------------= --------------------------- Copyright 2005 SF Chronicle