Judge Tosses United Pilot Contract

January 7, 2005 (PLANSPONSOR.com) - A US Bankruptcy Court judge in Chicago overseeing United Airlines' business reorganization tossed out the carrier's new contract with its pilots - in part because it would require other unions' pension plans also be terminated.

In his Friday ruling, Judge Eugene Wedoff said several aspects of the proposed agreement, which called for 15% pay cuts would “unduly tilt the bankruptcy process,” the Associated Press reported.

Wedoff told the parties that he hopes the company and pilots can craft a contract based on the previous one, but warned that he would also reject any future agreement that was tied to the elimination of other unions’ pensions, saying those should be considered on their own merits.

“I come to this decision with extraordinary reluctance,” Wedoff said during the hearing, citing the pilots’ efforts to craft an agreement and the sacrifices they have already made, the AP said.

United has said it needs $725 million in annual labor cost reductions in place by mid-January to line up the financing needed for it to emerge from Chapter 11 bankruptcy protection. The pilots’ proposed contract would have allowed the union to terminate the deal if United allowed any other employee group to keep its pension program.If United broke its agreement with the pilots, it could have cost the company $28 million a month — $14 million in forgone cost savings and $14 million in penalties — under terms of the deal, the AP reported.

Wedoff’s Friday ruling was a disappointment for United, spokeswoman Jean Medina said.  “We think we had an agreement that was fair and equitable,” Medina told the AP. “But as the judge indicated, we’re going to sit back down at the table.”

Also, United attorney James Sprayregen contended the pilots’ agreement would not dictate future collective bargaining with its other unions. “I don’t see in any way, shape or form that this impinges our ability to negotiate with each individual union,” Sprayregen told the AP.

Some creditors also were critical of the pilots’ deal, including the federal Pension Benefit Guaranty Corp., which estimates it would be responsible for about $1.4 billion of the plan’s $2.9 billion in underfunded assets if the proposed agreement is approved (See PBGC Takes Over United Pilot Pension Plan ).

Friday’s ecision comes as the airline industry’s relentless drive to slash costs is leaving employees with a bleak financial outlook.

Machinists at US Airways Group Inc., the nation’s seventh-largest carrier, face pay cuts of up to 35% and the loss of thousands of union jobs after a bankruptcy judge Thursday unilaterally canceled their contract (See   Bankruptcy Judge Allows US Airways to Drop Pensions ).

Thursday, Wedoff approved United’s emergency motion to temporarily cut wages by 11.5 % for baggage handlers, ramp workers and public-contact workers represented by the International Association of Machinists and Aerospace Workers. IAM said it welcomed the short-term contract, which lasts through April 11, as a way to give it “the additional time to achieve an agreement that preserves our pensions.”