United Seeks More Cost Cuts from Unions
Friday October 15, 5:06 pm ET
By Meredith Grossman Dubner
CHICAGO (Reuters) - Bankrupt United Airlines said on Friday it needs more labor cost cuts on top of any gains from terminating employee pensions and expects to move toward voiding its labor contracts in early November.
United, a unit of No. 2 U.S. airline UAL Corp. (OTC BB:UALAQ.OB - News), said it still believes termination of its employee pension plans is likely. But the airline's attorney told a bankruptcy court judge at a Friday hearing that even those savings will not go far enough.
"We think there's clearly more beyond pension savings that we need in order to have a viable business plan, and some of that comes out of labor costs," Chief Financial Officer Jake Brace told reporters after the hearing.
United said it needs the additional labor cost savings in place by mid-January to ensure the company can maintain a comfortable cash balance. Still, the airline hopes it can strike deals with the unions before having to ask the court to cancel union contracts under Section 1113 of the U.S. bankruptcy code.
United's unions already agreed to $2.56 billion in concessions early in its bankruptcy. The Elk Grove Village, Illinois-based carrier has been operating in Chapter 11 since December 2002.
United's unit of the Air Line Pilots Association said it will continue to demand that the company obtain givebacks from other stakeholders -- including creditors, aircraft lessors and Star Alliance airline partners -- before cutting pilot wages again.
"We fully understand the financial challenges facing the company ... It remains clear to us, however, that the company has not fully explored all non-labor cost savings before turning to its pilots and other employees for another bail-out," spokesman Capt. Herb Hunter said.
A spokeswoman for the Association of Flight Attendants said the company's move to seek further givebacks was not surprising although it was "concerning."
Brace declined to comment on how United would seek to divide up cost savings -- through reductions in wages and benefits, changes to work rules, or a combination.
BUSINESS PLAN IN THE WORKS
Brace said the carrier continued to talk to bankers about exit financing.
"We have a good idea of what sort of business plan is financeable. Right now, we don't have a plan that's financeable," Brace said.
United also said in court papers it now expects fuel costs to be more than $1.2 billion higher than planned for this year. It has increased its 2005 fuel expense forecast by $475 million.
Soaring fuel costs have been a major problem for airlines, which are already grappling with cost structures that are too high and declining fares.
Also on Friday, Judge Eugene Wedoff granted United another 30-day extension of its right to file a reorganization plan at the exclusion of competing proposals. United said it plans to ask for a multi-month extension of the exclusivity period at its November bankruptcy hearing.
United also said it reached a deal with bondholders involving $600 million of special facility revenue bonds issued by Chicago on behalf of United. If approved by the court, the deal would cut its obligation to $150 million, which the airline would handle by issuing debt convertible into shares of the reorganized company.
A spokeswoman for Chicago's law department was not immediately available to comment on the proposed settlement.
(Additional reporting by David Bailey and Karen Pierog)