Strategy

Airlines Fight to Stay Aloft

United hammers out an agreement with two unions that avoids a crippling strike and clears the way for its parent to emerge from bankruptcy; Delta r...
Stephen TaubJune 2, 2005

United Airlines announced that it has reached an agreement with its largest union, which represents machinists, shortly after its mechanics union ratified a long-term contract, according to the Associated Press. The AP added that both unions had planned to strike if a bankruptcy judge had cancelled their current contracts and allowed the airline to cut wages and benefits.

“We now have what we wanted all along, which is a fair and equitable settlement on all issues,” said Randy Canale, president of District 141 of the International Association of Machinists and Aerospace Workers, according to the wire service.

The airline had earlier reached long-term agreements with its pilots and flight attendants and with the Pension Benefit Guaranty Corp. The deals will ultimately allow the airline to cut an additional $700 million or so per year on top of $2.5 billion in annual concessions it won in 2003, the AP noted.

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The flight attendants union is still fighting the judge’s approval of United’s plan to hand off four defined-benefit pension plans to the PBGC.

UAL Corp., the parent company of United Airlines, is still trying to secure $2 billion in loans from banks so it can emerge from Chapter 11 bankruptcy, the AP pointed out.

Meanwhile, Delta Air Lines Inc. announced that General Electric Capital Corp. has offered more-flexible payment arrangements in its financing agreement — specifically, by reducing levels of EBITDAR (earnings before interest, taxes, depreciation, amortization and aircraft rent) that the airline must maintain for specified periods of time. Delta stated that it requested the change because of historically high jet fuel prices.

In addition, Delta will be required to maintain its current level of no less than $1 billion of unrestricted funds at all times; that threshold had been expected to be lowered to $750 million after October 31.

In a filing, the airline also stated that it has signed a similar revised agreement with American Express Co.’s travel services division, according to the AP.

Northwest Airlines Corp. is resorting to more-modest measures. Company spokesman Kurt Ebenhoch said that Northwest will stop carrying magazines on its planes and in its passenger club lounges, enabling the airline to save $565,000 in the coming year, according to the Associated Press, Last week, Northwest announced that it would no longer offer those small, complementary bags of pretzels to its passengers.