US Airways Pilots OK Pay Pact

The package includes an 18% pay cut, as labor and management try to save the carrier.
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Updated from 1:23 p.m. EDT

Pilots at

US Airways

(UAIRQ.OB)

gave a thumbs-up Thursday to a sweeping package of concessions that compose a crucial part of the airline's plans to emerge from bankruptcy protection.

The Airline Pilots Association, which represents 3,200 US Airways pilots, said in a statement that its rank and file had ratified by a 58% margin the tentative agreement union leaders hashed out with management late last month.

The five-year agreement will cut pay by 18%, increase work loads and reduce company contributions to the pilots' retirement plan. It also offers pilots some potential incentives, including a profit-sharing plan.

The agreement, which the airline estimates will yield about $300 million in annual savings, had proved contentious among pilots, who have already agreed to billions of dollars worth of concessions and the elimination of a defined-benefit retirement plan. Earlier this month, the union's Master Executive Council was divided over whether to put the agreement to a vote, and when it did, it offered no recommendation as to how pilots should cast their ballots.

Some pilots may have switched their votes to "yes" after a federal bankruptcy judge last Friday granted the airline's request to cancel its union labor contracts under Section 1113(e) of the bankruptcy code. Judge Stephen Mitchell of the U.S. Bankruptcy Court for the Eastern District of Virginia allowed the airline to cut union pay by 21% through Feb. 15. The airline had sought a larger 23% reduction, saying the interim relief was necessary for it to continue operating through the winter.

David Castelveter, a US Airways spokesman, said the agreement was hashed out with the understanding that if ratified, it would supercede the emergency pay cuts the airline sought from the court.

Still, the pact must receive the go-ahead from Judge Mitchell; the pilots union said it has scheduled a motion requesting approval for Oct. 26.

"Our pilots have demonstrated their leadership in working with us as we transform US Airways into a successful and competitive airline," the airline said in a statement. "We appreciate their thoughtful and careful consideration of the very difficult issues that will soon confront virtually every one of our legacy competitors as well."

Castelveter called the pilots' vote "a very important step," as the airline seeks to reduce its costs, but he noted the airline is seeking a total of more than $600 million in annual labor savings on top of the $300 million from the pilots' agreement.

The spokesman said US Airways is engaged in discussions with other major labor groups.

The pilots' union called upon management and other union workers to pitch in to keep the carrier aloft.

"Once again, we have delivered on our commitment to participate in a plan to restore US Airways to profitability, but we cannot and will not do it alone," said Captain Jack Stephan, spokesman for the airline's pilots union, in the news release. "Management and salaried employees, along with other labor groups, must also participate in the transformation plan. We look forward to management reaching consensual agreements with all employee groups."

Network airlines like US Airways are facing turbulence, with fuel costs out of control, too much industry capacity and cutthroat price competition from low-cost carriers such as

JetBlue Airways

(JBLU) - Get Report

and

Southwest Airlines

(LUV) - Get Report

.

American Airlines parent

AMR

(AMR)

,

Continental Airlines

(CAL) - Get Report

,

Delta Air Lines

(DAL) - Get Report

and

Northwest

(NWAC)

all weighed in with third-quarter losses this week, and Delta has warned it soon may have to file for chapter 11 bankruptcy protection.

Although low-cost darling Southwest recorded a third-quarter profit and JetBlue is expected to record earnings of 10 cents a share when it reports next week, some other low-cost carriers are having trouble surviving in the face of spiraling oil prices. Shares of

ATA Holdings

(ATAH)

and

Independence Air

(FLYI)

have slumped recently on fears that the two carriers may have to seek bankruptcy protection.