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player ready...United Airlines has reached a tentative agreement on a new contract for its mechanics, the carrier said Monday, heading off a threatened strike that could have grounded the nation’s second-largest carrier.
If ratified in a March 5 vote, the pact would give United’s nearly 13,000 mechanics their first raise since 1994, ending a bitter two-year dispute. It also sets the stage for additional negotiations on givebacks from all of United’s unions, aimed at restoring the troubled airline’s financial viability.
Like all carriers, United has been hard hit by the downturn in business travel last year as the economy stalled and by the terrorist attacks of Sept. 11, which further drove away passengers.
Key to rebuilding its business is whether United can win concessions from its unions, airline officials have said. Those talks, which the airline hopes will save it several billion dollars annually, are expected to begin next month, after United settles a contract with its 23,000 ramp, customer service, gate and reservation workers.
But the deal with its ramp workers likely won’t be cheap, if the contracts won by mechanics and United’s pilots are a gauge.
Mechanics would receive a 37 percent boost under their tentative pact, while the airline’s pilots received pay increases of 22 percent to 28 percent when they signed their deal 18 months ago.
To secure the deal, Elk Grove Township-based United dropped a demand that would have forced mechanics to accept any wage concessions negotiated by the airline’s other unions, agreed to increase the amount of retroactive wages by 33 percent and agreed to begin making retroactive payments sooner.
The pact came three days after United and the International Association of Machinists and Aerospace Workers resumed negotiations on Friday, after union members soundly rejected a deal earlier in the week. The original contract was recommended by a Presidential Emergency Board.
When President Bush created the board Dec. 19, the action effectively blocked mechanics from striking for 60 days. The strike ban was due to expire Tuesday at 11 p.m. CST.
United, which lost $2.1 billion in 2001, has said the settlement with its mechanics and ramp and customer service workers could add as much as $400 million to its annual costs.
`No choice’
But Ray Neidl, airline analyst for ABN Amro Securities, said United “really had no choice.”
“The company could not afford to take a strike at this point,” he said.
Union officials are recommending that members approve the contract.
“This agreement fulfills the IAM’s promise to negotiate an industry-leading contract,” said Scotty Ford, president and lead negotiator for District Lodge 141-M of the machinists union.
Currently, senior mechanics are paid a top rate of $25.60 an hour. Under the contract, the top rate would jump to $35.14 an hour, the highest by a few cents per hour in the industry.
United also agreed to increase the retroactive pay due each mechanic to $16,500 from $12,500, and to begin making the payments on Dec. 15, six months sooner than what it originally had proposed.
In addition, the airline accepted a union proposal that would permit its members to vote on any wage concession plan, something they would have been barred from under the old deal.
Jack Creighton, United’s chairman and chief executive, said he was pleased with the tentative pact.
“Reaching agreement with District 141-M is a critical milestone in developing a recovery plan that meets the needs of passengers, preserves jobs and puts the company on the road to financial stability,” Creighton said. “With the agreement, our customers can be confident that United will continue to operate without disruption.”
Once a settlement is secured with ramp and customer service workers, the stage will be set for wage concession talks. Creighton has set a March 20 deadline for wrapping up the contracts so he can address concessions, which he has said are key to United’s recovery.
Higher labor costs
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Compared with its peers, United’s labor costs are higher because of union work rules and other requirements, analysts said. As a result, United employs more workers to operate flights than other carriers.
For instance, American Airlines, the world’s largest carrier since its acquisition last year of Trans World Airlines, spent $150 million less on labor in last year’s third quarter than United. United spent 11.27 cents for each available seat mile it flew during the quarter, while American spent 11.03 cents per available seat mile.
“If they don’t get any concessions, then this company is a candidate for bankruptcy if the recovery does not materialize or at the next downturn in the economy,” Neidl said.
But wage concessions might not be enough.
David Stempler, president of the Air Travelers Association, a Washington-based advocacy group, predicted that the carrier would need to raise fares. Whether United can make those fares stick is another question, he said.
“Unless the rest of the industry goes along, they will be out there slowly twisting in the wind,” Stempler said. He said US Airways was repeatedly blocked from raising fares in the early 1990s when its competitors refused to go along.