UAL seeks to void union contracts

[Freight Dog]

CHICAGO (Dec. 27) - In an effort to protect its $1.5 billion in interim financing, bankrupt United Airlines is heading to court to target its labor contracts.

United has until Feb. 15 to cut costs or it could lose the loans it has received to keep it flying. So it plans to file a motion Friday in U.S. Bankruptcy Court, asking a judge to begin the process of voiding contracts with its unions.

Both United and the six unions view the filing as a procedural move.

If the request is granted, United would have 51 days to negotiate an agreement with unions to cut wages by $2.4 billion. Otherwise, a federal judge could have the final say on labor contracts.

United - the world's second biggest airline - says its labor costs are the highest in the industry. So far, the company has not outlined anything specific about its latest cost-cutting proposals.

Spokesman Joe Hopkins said the carrier had no comment beyond a one-sentence news release announcing its plan.

Shares in United parent UAL Corp. rose 13 cents to $1.42 each in early trading Friday on the New York Stock Exchange.

Union representatives have criticized Elk Grove Village, Ill.-based United for giving them a list of proposed givebacks instead of a complete business plan. Labor groups want to see such a plan before agreeing to cost cuts, Air Line Pilots Association spokesman Dave Kelly said Thursday.

''Until we get that information, it's really hard for us to determine what the company is asking for and how we can work with the company to reach that rational business plan,'' Kelly said.

The union representing United flight attendants called the company's filing a ''positive development.'' Union officials said they'll keep working with United to help the airline recover.

In a posting on its Web site, the union representing United ground workers advised its members late Thursday that the group was ''not presently engaged in negotiations with United Airlines'' and that the union did not ask the carrier to delay its motion.

United's statement said it was delaying the filing in response to ongoing negotiations and labor union requests.

United needs to slash its labor costs by $2.4 billion annually to satisfy its lenders, according to the flight attendants' union. The unions already have agreed on about $1 billion in yearly cuts as part of United's failed try for a government loan guarantee.

The airline warned in its Chapter 11 bankruptcy filing on Dec. 10 that cuts were coming that would go well beyond its previous financial recovery plan, which called for $5.2 billion in labor cutbacks by 2008.

AP-NY-12-27-02 1108EST

 

[pilotyip]

No Choice

They have no choice and cuts will go further than just a breaking of the contract. They have to become productive and profitable or perish. Anyone who fails to accept this is in a state of denial.

 

[NYRANGERS]

Re: No Choice

They have no choice and cuts will go further than just a breaking of the contract. They have to become productive and profitable or perish. Anyone who fails to accept this is in a state of denial.

There is soo much more to becoming profitable than breaking union contracts. United has not presented the employees any kind of plan. They should not be asked to for go %50+ of their pay just for United to last a few more days.

You sound like another know-nothing analyst.

 

[dispatchguy]

The kicker is is that to get the 2nd half of their DIP financing, they have to show a positive cash flow for the first quarter - which is like getting a politician to tell the truth during the election campaign.

Even if they tear up the contracts, and slash everybodys wages to 1/2 what they are today, I still think it will be too little too late.

 

[bobbysamd]

Bankruptcy union busting



I thought that Congress enacted laws to eliminate such tactics after the 1980s round of Frank Lorenzo Continental union-busting.

 

[njcapt]

Re: Bankruptcy union busting

I thought that Congress enacted laws to eliminate such tactics after the 1980s round of Frank Lorenzo Continental union-busting.

Thanks to Frank, it now requires specific approval of the bankruptcy judge to void union contracts. Also, there has to be fairly compelling evidence that the employee group is not seriously bargaining in order to come to a negotiated settlement. In the case of the IAM, their continuing reluctance to work with the company isn't going to help them with 'da judge.

 

[pilotyip]

Union Busting?

Bobby this is not about union busting, it is about saving 10,000 pilots jobs. UAL has terminal cancer and it needs to be operated on ASAP. To put off the operation because you don't want to admit you have cancer is denial.

 

[bobbysamd]

Surgery v. amputation v. decapitation

Thanks to Frank, it now requires specific approval of the bankruptcy judge to void union contracts. Also, there has to be fairly compelling evidence that the employee group is not seriously bargaining in order to come to a negotiated settlement. In the case of the IAM, their continuing reluctance to work with the company isn't going to help them with 'da judge.

That answers my question. Thanks.

I understand Pilotyip's point, above. There's a difference between using a scalpel and using a machete. I had understood that Frankie boy used bankruptcy as a machete to eliminate unions from the Continental property.

 

[TurboS7]

Under Chapter 11 the company is required to go to the union and ask for relief of the contract under emergency conditions. The union is required to present this plan to the employees and they should vote on it . If the company cannot get the required relief from the unions they go to the judge. At this point the judge can authorize the company to impose any contract on the union to provide the relief that it needs.But as one person brought up at this point UAL is in such bad shape that all the pilots could work for free and it would not help the situation. I predict that unless things change in the economy soon that AA will be right behind UAL.

 

[rjcap]

as one person brought up at this point UAL is in such bad shape that all the pilots could work for free and it would not help the situation

If this is true then we will see a major route and aircraft reorganization.

I predict that unless things change in the economy soon that AA will be right behind UAL.

Even if the economy begins a rebound the current big three airline business models will not thrive in the future marketplace.

 

[Publishers]

Bobby

Bobby,

The fact is that in the case of US and UAL, the management is in different hands now. There is also a different mentality in the current economic situation than in previous major airline bankruptcy.

The bankruptcy financers are in control and they hold no airline passion. It is amazing and will be amazing how quickly the labor groups come to terms when they realize they are dealing with people even more dangerous than Frank Lorenzo who at least wanted to be in the airline business.

These people want their money repaid and they are not too quick to liquidate assets to get it. With the full support of the bk judge, things will change and now.

 

[Clownpilot]

OK

Turbo,

Would you mind supplying the financial statistics from AA that back up this statement? I appreciate your assessment but please provide the numbers you ran to reach this conclusion.

Specifically, I need available cash, debt to equity ratio, cash burn, fuel cost including future hedging levels, lease payments, equity of owned vs. leased aircraft to identify leverageable non liquid assets, labor costs, tax burdens (including writeoffs from retiring fleets, TWA acquisition, depreciation and consolidation of moveable and non moveable assets), average ticket price, yield level to break even, price structure and a/c class configuration modification revenue changes, current effects of U and/or UAL chapter 11 filing on bookings, effects of future bankruptcy issues at two major competitors on bookings, predicted cost cutting measures already in place, future cost cutting measures, fleet consolidation savings, effects of restructured leases with vendors, and current business plan changes immediate effects through fy 2003.

I"m sure I've left some out but I'm sure they're included in your indepth analysis. I'd appreciate those numbers as soon as you can send them.

Thank you.

I predict that unless things change in the economy soon that AA will be right behind UAL. [/B]

 

[bobbysamd]

Scalpel v. machete

These people want their money repaid and they are not too quick to liquidate assets to get it. With the full support of the bk judge, things will change and now.

I appreciate that point. Just that for time immemorial, management and pilot-labor have been poles apart. Everytime a new contract is signed the gouging just starts up again. It is just plain wrong for a company to use the excuse of bankruptcy to exorcise unions from its property.

Hopefully, this won't be a repeat of the SOS.

 

[Tim47SIP]

Clowndood

Specifically, I need available cash, debt to equity ratio, cash burn, fuel cost including future hedging levels, lease payments, equity of owned vs. leased aircraft to identify leverageable non liquid assets, labor costs, tax burdens (including writeoffs from retiring fleets, TWA acquisition, depreciation and consolidation of moveable and non moveable assets), average ticket price, yield level to break even, price structure and a/c class configuration modification revenue changes, current effects of U and/or UAL chapter 11 filing on bookings, effects of future bankruptcy issues at two major competitors on bookings, predicted cost cutting measures already in place, future cost cutting measures, fleet consolidation savings, effects of restructured leases with vendors, and current business plan changes immediate effects through fy 2003.

Man, wake up and smell the coffee. If that is not enough, read the reports in the WSJ, Boyd reports, and many of the economists impressions out there. AA filing BK is a real possibility (ALTHOUGH IN MY OPINION, NOT PROBABLE-SO I AGREE WITH YOU). I really hope that it will not happen at all, and pray that no more AA employees get layed off, but times are tuff. Yes they have a lot of equity in assets, but my hunch is they dont want to loose them either.

 

[TurboS7]

My prediction has nothing to do with equity ratings etc, etc, just plain common sense. AA's has a very, very aggressive marketing department. They will do anything to beat the competition. If they feel that for one moment that UAL will have a marketing advantage by being in Chapter 11 then they will go Chapter 11 to meet the challenge. Especially since at this point they are bleeding just as bad as UAL. Another interesting part of history is that every airline that has gotten the South America routes out of Miami is not with us anymore. Something to think about.

 

[mackinhoes]

What are you guys all worked up about????

Once George W's tax breaks for the rich kick in, the economy will go Mach 3+. Businessmen will have soooo much money to spend on over-priced, last minute tickets on over-booked airplanes that revenues at the majors will soar.

Not only will I get a furlough recall, but the captain upgrade is just around the corner. I can't wait.

George Bush. Friend of the airlines (management). I can't wait for anyone one else to run against him.

 

[Clownpilot]

No, Sorry

Entering Chapter 11 removes control of the company from management and places it in the hands of the judge. Strategy is no longer an issue. The only thing that matters is paying the creditors. Look at all the airlines that have entered bankruptcy in the past 20 years. Of those, all but 2 have failed and disappeared completely. The other 2 diminished in size to the point where they were mere shells. It just isn't possible to compete in bankruptcy. While you alleviate immediate debt, your credit rating drops so low that every creditor might as well be a loan shark at the rates you pay and the creditor's bills always come first. No, AA will avoid BK at all costs. This is all about the last ones standing. Wait until U disappears. They are in a death spiral. This industry is changing no doubt. But in 2 years it will be amazing how much things change yet stay the same.

My prediction has nothing to do with equity ratings etc, etc, just plain common sense. AA's has a very, very aggressive marketing department. They will do anything to beat the competition. If they feel that for one moment that UAL will have a marketing advantage by being in Chapter 11 then they will go Chapter 11 to meet the challenge. Especially since at this point they are bleeding just as bad as UAL. Another interesting part of history is that every airline that has gotten the South America routes out of Miami is not with us anymore. Something to think about.

 

[mackinhoes]

The bankruptcy judge appoints a master who makes most of the decisions regarding the classification of the creditors, percentages of their claims that they may recover and whether some creditors' claims are even valid. The master also renegotiates the terms of repayment. These decisions may be appealed to the district judge and later, to the circuit court of appeals.

Most business decisions are not made by the master, but are still made by management. Further encumbering assets and negotiating any new debt is subject to the master's approval. Continuing poor management practices, including pissing off all the employees, overloading the company with VP's, encouraging poor productivity by killing morale, these are not evaluated by the master.

Prognosis: poor.

 

[Slim]

According to analysis of AMR, UAL and DAL, Morningstar published the market capitalization of the three holding companies.

AMR: $3.8 billion
DAL: $3.1 billion
UAL $525 million

This is as of late summer/early fall 2002.

AMR (American) and DAL (Delta) are in much better financial shape than UAL (United). The statement that AA isn't far behind United where a BK filing is concerned is ludicrous, or uninformed at best.

AA is trying to reduce their operating costs. So are other carriers. In this environment, who wouldn't?!?!! At the end of 2001, I read that UAL's break even load factor was 98%! Several months later, the same source said it was down to 89%.

 

[rjcap]

The statement that AA isn't far behind United where a BK filing is concerned is ludicrous, or uninformed at best.

The basis for this statement is the continued losses in excess of 1 billion a year.

At the end of 2001, I read that UAL's break even load factor was 98%! Several months later, the same source said it was down to 89%.

Very questionable considering that United showed up to bankruptcy court losing 20 million per day.

SLIM,

Who cares about unencumbered assets and market capitalization. Not one of these airlines has any real borrowing power in the marketplace these days.

Considering borrowing off of your unencumbered assets, If your operating a negative cash flow entity you can only tread water for so long.
i.e. how long can you live off of your credit cards while your unemployed ?

Also, used airliners are probably 50 cents on the dollar these days. If they were financed years ago then they are very likely upside down on the loans/financing. Not a pretty situation if you want to reduce your fleet size.

Cheers

 

[skykid]

Clownpilot, would you mind supplying the financial, legal, and historical facts and statistics to back up these three statements:

1. Ch 11 removes control of the company from mgt and places it in the hands of the judge.

2. Strategy is no longer an issue.

3. "U" is in a death spiral.

I appreciate your assessment but please provide the numbers you ran to reach these conclusions.

Specifically, in addition to the applicable list of requirements you needed from Turbo, I need a comparison of decisions made by "U" mgt vs Ch 11 court rulings, the source of strategic moves "U" has appeared to make in the past month and how the industry will or wont respond, an indepth analysis of the differences between past airline bankruptcies and present ones, an analysis of bankruptcy law to include Section 1113 Petitions, and possible effects of a Gulf War and Korean War.

I'm sure I've left some out but I'm sure they're included in your indepth analysis. I'd appreciate those numbers as soon as you can send them. I don't necessarily agree or disagree with your statements, but possibly reasonable people, even industry experts, would disagree with your all or part of your assertions.

thank you

 

[Chas]

My 2 cents

PILOTYIP its not just 10,000 pilot jobs there are hard working FA's with mortgages too as well as other employess some which have shownb there greed others have not. I know this is a pilot board but a alot of families are possibly in a "world of hurt"

 

[pilotyip]

I stand corrected

You are right I should have said 50K+ employees and not 10K pilots, but like you said most of the slant on this board is pilot, I stand corrected