Hoping to steer United Airlines away from a bankruptcy protection filing, the company’s five unions presented executives last night with a long-awaited proposal to save $1 billion a year in labor costs for five years.
The proposal was hammered out late yesterday afternoon by the leaders of the unions at a meeting in Chicago, the home city of UAL, the parent company of United. Executives had been waiting for the proposal for several weeks, ever since Glenn F. Tilton took over as chief executive of the airline.
The unions said they hoped that the savings would help United receive a $1.8 billion loan guarantee from the Air Transportation Stabilization Board, a federal agency, or get financing from capital markets. The carrier has said it desperately needs the financing to avoid filing for bankruptcy protection.
”The coalition framework is without precedent for this or any other airline, and United has the most committed employees and strongest airline franchise in the world,” the unions’ leaders wrote yesterday in a letter to Mr. Tilton. ”We will not let it fail.”
”We look forward,” the letter continued, ”to working with you to implement the coalition framework, to secure financing for the company” through the federal loan guarantee program or a third party.
United Airlines did not immediately address the amount of labor savings proposed by the unions.
”We will study the framework very carefully, and we are committed to responding to the coalition and its members in the days ahead to finalize an updated business plan,” the company said last night. ”At the same time, we are focused on ensuring that United remains a highly competitive business for the long term.”
UAL’s board discussed the proposal at a meeting last night and will examine it further this morning.
The concessions offered by the unions is significantly less than what John W. Creighton Jr., Mr. Tilton’s predecessor, had said was needed for United, the nation’s second-largest airline, to get the loan guarantee.
Last month, Mr. Creighton announced that the unions would have to give up $1.5 billion a year over six years.
The unions scoffed at that figure and immediately formed the coalition to come up with their own plan.
In the letter, the unions said that the labor cost cuts, together with other cutbacks and initiatives, would increase the company’s annual profits by $2 to $3 billion. The unions reached the $1 billion-a-year figure after consulting with their financial advisers, and after having several meetings with United’s own advisers.
The company had hoped that a proposal would be presented last Friday, but the unions said they would have to work through the weekend.
The unions said they had not determined exactly how the cuts would be divided among the labor groups.
”Our discussions with United Airlines will include several cost savings proposals, including tapping United’s best asset for ideas on how to save money — our members,” said Randy Canale, president of district 141 of the International Association of Machinists and Aerospace Workers, which represents 35,000 United employees.
”Any discussion,” Mr. Canale said, ”must also include recognition for the substantial sacrifices machinists union members have already made to United’s recovery efforts.”
In a written statement, Mr. Canale pointed out that the machinists agreed recently to defer $500 million in retroactive pay owed to them as part of the latest contract agreement.
The first payment of that amount becomes due in December. The machinists have repeatedly said this is a significant loan they have made to the airline.
Greg Davidowitch, the president of the United chapter of the Association of Flight Attendants, said in a written statement: ”Being a part of the solution that assists United in surviving its near-term financial crisis is central to our goal of ensuring that the flight attendants’ long-term interests are represented.”
Mr. Davidowitch added that he hoped that ”United can successfully amend its application for a loan guarantee from the Air Transportation Stabilization Board, get access to near-term financing, avoid bankruptcy and rebuild.”
The transportation board has been reviewing the loan guarantee application from United, which is intended to help the airline get $2 billion in private loans. But federal officials had told United that it needed to get deeper concessions from its employees and suppliers to bolster the application’s chances of success.
Soon afterward, Mr. Creighton said United would need to get $2.5 billion in annual cost savings, with $1.5 billion of that coming from labor.
After Mr. Tilton was named as chief executive early this month, he did not indicate exactly what amount he hoped to get from the unions, but he did not reject Mr. Creighton’s number. He has personally met with union leaders in the last week to talk about the concessions.
United lost a record $2.1 billion last year, and $341 million last quarter, leading many industry experts to say that it might have to declare bankruptcy.