Continental Sets Tentative Accords For Cutting Costs
By MELANIE TROTTMAN
Staff Reporter of THE WALL STREET JOURNAL
March 1, 2005
Continental Airlines reached tentative agreements with its biggest unionized work groups, an important step for the carrier as it seeks to slash its labor costs by $500 million annually to remain competitive in a troubled industry.
The airline also said it will issue stock options for about 10 million shares to all employees in return for the pay and benefit cuts, equivalent to 15% of the company's outstanding shares.
The Houston airline, which late last year said it would have to seek cuts from all employees to survive long term, yesterday reached tentative deals covering its pilots, flight attendants, mechanics and dispatchers. Terms of the tentative agreements weren't disclosed so that the union officials can communicate them directly to members. The carrier had been seeking $331 million from those groups in pay cuts, benefit reductions and work-rule changes to bring about greater efficiencies, and it had set a deadline of yesterday to meet that goal.
Continental, the nation's fifth-largest airline in terms of traffic, was the last of six major hub-and-spoke carriers to ask for wage and benefit concessions following the terrorist attacks on Sept. 11, 2001. Like all other U.S. carriers, Continental has faced high fuel costs and a low-fare environment brought on by a competitive market flooded with airline seats.
Continental is considered one of the healthier of the traditional airlines. Still, it is under pressure to reduce costs further so it can compete more effectively with lower-cost airlines such as Southwest Airlines and AirTran Holdings Inc.'s AirTran Airways. Continental had a net loss of $363 million in 2004.
The deal with the pilots union didn't involve just negotiating pay and benefit cuts. The company's 4,000-plus pilots have been working for more than two years under a labor contract that became amendable Oct. 1, 2002. Their tentative agreement includes a new 45-month labor deal that provides pension and job protection, and profit sharing should Continental recover from its financial problems.
These latest deals still must be approved by union leaders and ratified by members of each work group to become final. The union representing the pilots said its new contract, if ratified, will save the company more than $200 million a year.
Final votes might not be tallied until the end of March. As a result, Continental said Boeing Co. agreed to allow the airline's board another month to approve an aircraft-acquisition agreement reached between the two parties.
Continental already had reached agreements for $169 million of wage and benefit cuts by mid-January, including reductions from gate workers, clerical employees, and reservation and food-services workers. The company's executives and board members also have already agreed to take pay and benefit cuts. Chairman and Chief Executive Larry Kellner cut his base salary 25%, effective yesterday, and most board members saw their compensation slashed 30%.
Write to Melanie Trottman at melanie.trottman@wsj.com