Reuters
US Air, Pilots Reach Deal on Cost Cuts
Wednesday December 11, 4:45 pm ET
By Julie MacIntosh
NEW YORK, (Reuters) - US Airways Group Inc.(OTC BB:UAWGQ.OB - News) and its pilots union said on Wednesday they reached a tentative agreement on $100 million in annual cost savings, half the new cost-cuts the bankrupt airline needs to avoid the threat of liquidation.
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The deal, which would also grant US Airways some relief from its underfunded pension obligations, came during talks between the airline and most of its major unions over another round of cost-cutting.
The Arlington, Virginia air carrier has already secured $1.3 billion in annual savings, but it approached unions for more concessions after it started falling short of revenue targets in September.
The Retirement Systems of Alabama, US Airways' primary bankruptcy financing partner, stepped up the pressure on workers last week. Its Chief Executive, David Bronner, made it clear he could refuse to fund the airline if it didn't secure another $200 million in labor-related cost-cuts to help it meet requirements for its financing.
The loss of that money, which is currently keeping US Airways' planes in the air, could ruin the airline's ability to emerge from bankruptcy.
But Bronner said in an interview on Wednesday that the pilots' agreement dramatically reduced the chance that US Airways would liquidate.
"That's the first great step to be taken -- it's fantastic for the future of the airline," Bronner said. "If they can come to an agreement with their other unions ... I think we can make it go."
KEEPING FEET TO THE FIRE
If the leadership of the Air Line Pilots Association ratified the new package, it could help the airline keep to its planned course of action in the bankruptcy courts.
US Airways expects to emerge from bankruptcy in March, provided it can win final approval of an application for $900 million in government backing on its loans. The airline's request was conditionally approved before it filed for bankruptcy protection in August, and the government restated that conditional approval after the filing.
"We continue to work to secure final approval of our loan guarantee from the Air Transportation Stabilization Board (ATSB) and file our plan of reorganization by Dec. 20," said airline Chief Executive David Siegel.
Bronner said Retirement Systems of Alabama has instructed US Airways to file its reorganization plan with the court by that date, even if it should receive an extension, to ensure that it secured approval of its loan guarantees and stuck to its timeline.
United Airlines, the No. 2 U.S. airline, filed for bankruptcy this week after the ATSB denied an application from its parent company, UAL Corp. (NYSE:UAL - News), for $1.8 billion in loan guarantees.
"The ATSB is a tiny, tiny little organization," Bronner said. "You can't let it get so overwhelmed that we go from the front burner, to the back burner, to off the whole stove. Then we just sit there in limbo, and our whole plan becomes useless."
PILOTS EMBARK ON ANOTHER ROUND
The pilots' package tentatively agreed upon Tuesday night includes changes in productivity and work rules, temporary wage cuts, and savings on benefits and pension plans. The group of about 6,000 pilots has already ratified $465 million in annual wage cuts and other concessions.
The deal -- the first announced by any of the airline's labor groups -- could help clear a path for deals with machinists, communications workers and flight attendants.
US Airways is already in talks with the International Association of Machinists and the Communications Workers of America. Its flight attendants' union has refused to start negotiations until other labor groups reach agreements and the airline's management shoulders more cuts.
US Airways' management made no such offer on Wednesday, but Jerry Glass, a senior vice president at the airline, said Siegel has already taken a 60 percent pay cut, while other executives have agreed to 17 percent pay cuts and other concessions.
US Airways said that in exchange for the pilots' wage cuts and productivity improvements, it would raise the minimum number of aircraft in its mainline fleet, offering more protection for pilots' jobs. The airline would set the minimum at 279 aircraft, the current size of its fleet, instead of 245.
It would also make MidAtlantic Airways, its new regional jet subsidiary, a division of US Airways, a move that would help secure more jobs for pilots who have been furloughed.
The union said 392 pilots were scheduled to be furloughed on Jan. 7, and another 79 would be furloughed through April.