Despite Labor Pact, UAL's Future Remains Uncertain

Updated from 9:10 a.m. EST

If at first you don't succeed ... negotiate all night long until something gives.

The tactic paid off for UAL (UAL Quote), which announced it had reached a new wage-cutting agreement with the International Association of Machinists. IAM rejected a similar proposal last week, raising the specter of bankruptcy for the second-largest carrier and sending its shares plummeting. They rebounded Monday and were recently up 36% to $3.32.

The negotiation breakthrough provides yet another glimmer of hope that the company can survive, although UAL is not out of the woods. On Thursday, the union's rank-and-file will vote whether to accept the agreement, which UAL management desperately needs in order to get a $1.8 billion loan guarantee from the government.

If UAL can't prove it can execute its plan to cut costs by $5.2 billion over the next five-and-a-half years, the Air Transportation Stabilization Board will reject their application for the loan guarantee, and the company will file Chapter 11.

Last week, 57% of machinists rejected the previous proposal because of quality of work-life issues and a dispute over unpaid vacation days. While UAL CEO Glenn Tilton has pledged to improve these issues, the new agreement looks a lot like the old one, keeping the 7% pay cut for machinists intact.

Tilton's words were enough to get IAM's leadership behind the new deal. Scotty Ford, president of District 141-M, which represents the 13,000 machinists, said he agreed to put the offer to a vote after United "addressed the issues expressed by membership."

"The District 141-M Executive Board strongly recommends ratification, as this is the final opportunity to avoid bankruptcy," Ford said.

A Broken Relationship

While union leadership has swung in favor of the UAL proposal, the rank-and-file may not be swayed. Just last week, the IAM's leadership was calling for a management change, with Ford criticizing the company for the way it treats machinists, calling on Tilton to recognize this issue.

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