US Airways Pilots Roll the Dice

After much debate, union leaders decide to let members vote on a package of concessions.
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Leaders of

US Airways'

(UAIRQ)

pilots union have sent a wage concession agreement to the rank and file for a vote, on the eve of a scheduled bankruptcy court hearing on the airline's request to cancel labor contracts.

The Air Line Pilots Association master executive council decided late Tuesday to hold a vote on the tentative agreement -- hammered out last week with management and expected to save the company about $300 million a year -- without recommending how members cast their ballots. Voting closes Oct. 21, and union leaders will conduct a road show from Oct. 8 to Oct. 14 to detail the agreement.

"This agreement provides us with the means to survive, emerge from bankruptcy as a formidable competitor, and ultimately prosper in even the most challenging of economic environments," said Bill Pollock, leader of the pilots union, in a message to employees. "We have again stepped up to save this company so that it can emerge from bankruptcy and demonstrate sustained profitability."

The bankruptcy court, meanwhile, is scheduled to hear US Airways' motion to dismiss its labor contracts under Section 1113(e) of the bankruptcy code tomorrow. Management must prove that it will be dealt "irreparable harm" if it is not allowed to immediately implement a new labor contract -- which includes a 23% pay cut. The court, however, could wait for union members to weigh in on the tentative agreement.

US Airways' survival is on the line. The airline lacks debtor-in-possession financing, common in bankruptcies, and must use its remaining cash to fund operations just as the industry entering the seasonally week winter months. Management has said it will have to file for Chapter 7 and liquidate if it can't come up with $200 million in cash in the next five months.

The airline must cut labor costs other than those of pilots. The Association of Flight Attendants, which represents 5,500 employees, and the International Association of Machinists, which represents 4,800 employees, have rejected management's last proposal on wage concessions -- and neither are at the negotiating table at the moment.

In reaction to news that pilots were ready to hold concessions to a vote, US Airways shares fell 2 cents, or 1.5%, to $1.36. The stock will likely be worthless, however, if and when the carrier emerges from bankruptcy protection and issues equity in a new company to pay back creditors.

The pilots' decision to vote on the tentative agreement -- which includes an 18% pay cut, increases in monthly work loads and reduced company pension contributions -- was contentious. A month ago, four local union representatives from Philadelphia and Pittsburgh blocked a general vote on a proposal that could have kept the carrier out of bankruptcy court. They refused to budge after the union had already given up $7 billion in concessions to management.