CHICAGO (Dow Jones) - Commencement last week of a trial in U.S. Bankruptcy Court in Chicago on whether to void the current labor contracts of two unions representing workers at UAL Corp.'s (UALAQ) United Airlines appeared to have jump-started parallel negotiations between the airline and its mechanics, ramp workers and customer-service agents.

Eager to stave off a ruling by Judge Eugene Wedoff that would annul current labor agreements and allow United to impose new terms, the International Association of Machinists union and the Aircraft Mechanics Fraternal Association stepped up negotiations with UAL.

But both unions still vow to strike if no consensual deals are reached and the judge agrees with United that the groups' current contracts are too costly to allow the airline to attract exit financing and step out of court protection. The trial is expected to wind up on Thursday although the judge doesn't have to rule immediately. Agreements with the unions would obviate his need to decide the matter. UAL asserts that the unions wouldn't have the right to strike.

A spokesman for the Machinists union said yesterday that his negotiators and United resolved "a major hurdle" on Friday over how to value some of the givebacks the airline is seeking from the 20,000 workers. Joseph Tiberi said Machinists negotiators were planning to fly back to Chicago yesterday and give United a "comprehensive" proposal last night or today. "The only positive outcome should come at the bargaining table," he said. But if Judge Wedoff abrogates the contract "we'll strike that day," he said.

Joe Prisco, president of the aircraft mechanics Local 9, said yesterday his union and the company were still talking. "The preferred outcome is you settle your differences," he said. "But we have to bring an agreement the membership will approve. We have a history of turning down first agreements." A majority of the 7,000 union members in January rejected an earlier tentative agreement on additional givebacks.

Prisco, whose local represents mechanics at United's big maintenance base in San Francisco, added that the AMFA locals still are preparing for a strike, but wouldn't say whether they would walk out "as soon as the gavel drops." The union's job action would depend on what the judge's order says, whether it contains an injunction against a strike and what the possibilities are for appeals, he said.

United, which is seeking about $275 million in annual savings for five years from the two unions in pay cuts, reduced sick pay and vacation time and other givebacks, is still talking to both groups in the hopes of reaching agreement before the trial ends on Thursday. A spokeswoman said United would even continue talking to the unions after a ruling. "When there's a trial [on contract abrogation], that encourages both sides to come to the table," she said.

The Association of Flight Attendants, which already agreed to new pay cuts, is in dispute with UAL on the issue of whether salaried and management employees made an equitable amount of sacrifices. That disagreement is headed to arbitration.

All three unions reacted strongly to Judge Wedoff's ruling earlier last week that UAL can shift its four underfunded plans to the Pension Benefit Guaranty Corp., a U.S. federal pension insurer. The flight attendants, in particular, had threatened to strike if that occurred. But Judge Wedoff effectively said a PBGC- initiated pension termination, even with UAL's concurrence, wouldn't breach union contracts.

Sidestepping the plans, which have a shortfall of nearly $10 billion between assets and benefits promised, will save UAL $645 million a year in pension contributions, which will make it a more attractive candidate for exit financing. But the PBGC won't pay all of the pension benefits UAL had been expected to provide to its 120,000 workers and retirees. Dow Jones Newswires 05-15-05 1734ET Copyright (C) 2005 Dow Jones & Company, Inc. All Rights Reserved.