"United Seeks More Cost Cuts from Unions"

Sunday, October 17, 2004

United Seeks More Cost Cuts from Unions
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., 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. 


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