Labor Law Test Looms for United

The bankrupt airline is asking to cancel contracts and shed pension obligations.
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The friendly skies are getting hostile.

Three unions representing some 41,000 employees of

UAL's

(UALAQ)

United Airlines

could go on strike if a bankruptcy court judge approves the airline's requests to cancel contracts and shed its traditional pension obligations.

Potential strikes would complicate United's efforts to emerge from Chapter 11 bankruptcy protection and could boost revenue for rival carriers. But they also raise fresh legal questions about airline labor relations.

"The United situation is poised to enter uncharted territory," says Robert Mann, founder of R.W. Mann & Co., an independent airline industry consulting firm. "There's no precedent for a strike on a contract that's been abrogated in bankruptcy."

The Railway Labor Act, which governs railroad and airline industry labor relations, prevents workers from striking immediately if they can't agree with management on a new contract. Instead, it requires federal mediation and, if all else fails, a 30-day cooling-off period before a walkout.

That potentially lengthy process assumes employees have existing contracts under which they continue to work, however.

See You in Court

United is asking the bankruptcy court to cancel contracts with roughly 6,800 mechanics represented by the Aircraft Mechanics Fraternal Association and about 19,500 ground workers represented by the International Association of Machinists and Aerospace Workers. The airline, which has been in Chapter 11 since December 2002, says it must impose concessions on the two groups in order to exit bankruptcy. A trial on the request begins Wednesday.

The mechanics' union has already voted to approve a strike if United changes any conditions of the union's existing collective bargaining agreement. IAM members are in the process of voting on whether to strike; balloting ends Wednesday.

If the judge cancels its contract, the IAM says a strike would be legal. "Our contract requires us to work, and there is no such requirement in the absence of a contract," says Frank Larkin, a spokesman for the union.

Meanwhile, another crucial court decision looms, with a hearing scheduled Tuesday on United's plans to terminate its traditional pension plans and hand over existing obligations to federal insurers. In what would be the largest pension bailout in U.S. history, the Pension Benefit Guaranty Corp. agreed last month to pick up $6.6 billion of United's $9.8 billion in unfunded pension obligations. Many workers' benefits would be reduced under the scheme, although United says it must terminate the pensions to have a shot at emerging from bankruptcy.

Both the mechanics' union and the Association of Flight Attendants, which represents about 15,400 United flight attendants, have threatened strikes should Judge Eugene Wedoff sign off on the pension plan transfer.

Unlike the mechanics' union and the ground workers represented by IAM, the flight attendants' union has agreed to concessions. But it says pension-plan termination would amount to a unilateral change in its contract that would legally allow it to conduct work disruptions.

Debating Concessions

Tensions have erupted in public. Last Wednesday, a group of flight attendants stormed a lecture by Dipak Jain, the dean of Northwestern University's business school and a United director, calling on the board to replace the airline's top executives.

"The concern for us is that this management remains in place, because they are leading the company to a labor relations meltdown and will destroy the airline," says Sarah Nelson Dela Cruz, a spokeswoman for the flight attendants' union.

The flight attendants complain company executives have received sizable bonuses even as they pressed workers for more concessions. Glenn Tilton, United's chairman and CEO, received $1.2 million in compensation in 2004, including a bonus of more than $366,000, according to a regulatory filing.

United contends none of the threatened strikes would be legal, although spokeswoman Jean Medina declined to elaborate. "The bigger issue for us is that it's best to focus energies on reaching consensual agreements," Medina says.

Late last year, United began seeking an additional $725 million in annual labor savings, saying it would ask the bankruptcy court to cancel existing contracts with unions that failed to negotiate new agreements. All but the mechanics' union and IAM nailed down new agreements.

United had already extracted employee concessions worth about $2.5 billion in a round of negotiations ending in early 2003.

Although actual strikes would obviously hurt United's operations and send travelers to other carriers, recent events alone may be hurting the airline's restructuring efforts. "Just talk of this has an impact," says Mann, the aviation consultant. "If you're a traveler, you would choose the other carrier if there's one airline with no labor problems and another where employees might strike... If you're a financier looking at maybe funding United in reorganization, you start to wonder about your partners."

But United spokeswoman Medina says the carrier has yet to see a slowdown in bookings.

In past battles with labor, airlines have sought to bring in strike-breakers. United hasn't hired any so far, but Medina says, "We take our customers' business very seriously and will take whatever actions are necessary to meet their travel needs."