United Airlines warned unionized workers Tuesday that if they don't agree to wage concessions by the day after Christmas, the carrier will ask the U.S. Bankruptcy Court to nullify existing labor contracts and impose lower pay scales.þþLate last week, only days after United's parent UAL Corp. filed for bankruptcy protection, the carrier outlined to its major unions a revised business plan calling for labor costs to be slashed by $2.4 billion a year, or more than double what the company previously had requested.þþUnion executives have expressed dismay over the scale of the givebacks United is seeking. As union execs were reviewing the company's revised business plan, UAL established an aggressive deadline to resolve the matter.þþWhile taking pains to say that it remains committed to achieving ÿconsensual agreementsÿ with its unionized employees, UAL said that if the workers haven't signed off on pay cuts by Dec. 26, the company will make what's known as a Section 1113 filing with Bankruptcy Judge Eugene R. Wedoff.þþThat section of the Bankruptcy Code permits employers to reject labor agreements. Although rarely used, the rule ÿis always in the back pocket of the debtor company,ÿ said bankruptcy lawyer John R. Weiss, a partner in the Chicago firm of Katten Muchin Zavis Rosenman.þþÿYou don't see it used all that often because labor knows it's there and cuts a deal,ÿ Weiss said.þþJames Sprayregen, United's lead bankruptcy lawyer and a partner at Kirkland & Ellis, disclosed the carrier's filing plan during a Tuesday hearing before Wedoff. Afterward, Sprayregen said the motion ÿwon't be the definitive word, but a step in the processÿ toward reaching an accord with company's employees.þþLate Tuesday, irked union leaders sought to downplay the significance of the company's pressure play. United's plan for the filing ÿis purely procedural,ÿ asserted Capt. Paul Whiteford, head of United's unit of the Air Line Pilots Association.þþAlthough UAL ÿtalks about a commitment to forging consensual agreements,ÿ Whiteford said, ÿso far the process they have employed gives us pause and concern.ÿþþSpecifically, he said, UAL has yet to provide union officials with business plan details that are ÿcritical for us in our evaluation of their proposals.ÿþþ`Part of process'þþUnited's often-combative machinists union offered members a similarly soothing interpretation of UAL's threat to unilaterally impose pay cuts. The planned filing ÿis not a surpriseÿ but ÿan expected part of the bankruptcy process,ÿ said Scotty Ford, president of the International Association of Machinists and Aerospace Workers Lodge 141-M.þþAfter United rival US Airways entered bankruptcy proceedings in August, Ford said, the company filed an identical motion. But before the weekslong process was completed, ÿvoluntary agreements were reached and ratified by the [union] membership, and their contracts, though modified, remain,ÿ he said.þþUnited said the timing of the motion was required by an aggressive schedule that mandates that the company implement wage reductions and other cost-cutting measures no later than Feb. 15. The timetable is a condition of the lenders who agreed to provide United with a desperately needed $1.5 billion post-bankruptcy loan.þþESOP sales on holdþþSeparately, Wedoff, citing the need to protect potentially valuable tax benefits, refused to lift a controversial order that bars UAL's employee stock ownership plan from selling the 32 million worker-owned UAL shares that the plan holds. United pilots joined with the company in opposing the sell-off, contending that it would jeopardize the long-term prospects for reorganization.þþThe dispute centers on a normally obscure financial term known as a ÿnet operating loss.ÿ In general, a company that suffers big losses in a certain period is allowed to bank those NOLs, and to use them to offset corporate profit in future years. To prevent profitable companies from buying worthless businesses simply to take advantage of tax breaks, the law almost completely eliminates the tax breaks if there is a change of control in the company.þþLooking to the futureþþWith United losing millions of dollars daily, income taxes aren't a big concern. But the company expects to return to profitability in the future. And, as UAL has pointed out in court filings, the huge losses it has racked up of late would allow the company to avoid paying a total of $1.4 billion in federal income tax over the next 20 years.þþThe situation is complicated, however, because UAL's employees gave up billions of dollars in pay concessions in 1994 in exchange for a 55 percent stake in the carrier. Since the company's struggle to remain solvent turned critical in September, the trustee of the ESOP has sold more than 24 million UAL shares in an attempt to salvage some value for the employee-owners.þþState Street Bank, the ESOP's trustee and investment manager, wants to sell the remaining 32 million shares it controls on behalf of the workers. But UAL, fearful that selling off the balance of the employees' stake would trigger the change-of-control rule, convinced the judge to issue an order that prohibits the ESOP from selling any more shares until Dec. 30.þþBy then, an attorney for the ESOP argued Tuesday, the value of UAL shares ÿmay evaporate.ÿ UAL shares closed Tuesday at $1.23 a share, down 23 cents.þþÿThis stock is heading south, your honor,ÿ said another ESOP attorney, urging the court to lift its ban.þþ
Source: Chicago Tribune
