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United OKs pay hike
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January 23, 2002: 2:18 p.m. ET
Airline agrees to 37 percent raise for mechanics despite financial woes.
By Staff Writer Chris Isidore
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NEW YORK (CNN/Money) - United Airlines' decision to accept a proposed 37 percent wage hike for its mechanics may help it avoid a strike, but it puts greater financial strains on the airline already projected to have the largest losses in the industry.
A three-member "presidential emergency board," appointed by President Bush to block a strike by the International Association of Machinists and settle the contract dispute, recommended immediate raises, including retroactive pay hikes, of 37 percent for the top mechanics pay.
The recommendation, made during the weekend, would hike hourly pay by 47 percent by May of 2004. The findings were close to the IAM demand of raises of 53 percent over the life of the contract.
United Airlines issued a statement late Tuesday saying that it would accept the pay package proposed by the PEB.
"Although it has expressed serious reservations with detailed recommendations contained in the PEB report, United today has decided to accept the report's recommendations for contract settlement," said the company's statement. "An IAM contract settlement is an important step in implementing the company's financial recovery plan."
Analysts see trouble from new wage pact
But that financial recovery will be much more difficult with the new pay scale, according to analysts, who predict that the company will now seek federal loan guarantees that will require parent company UAL Corp. (UAL: up $0.41 to $14.86, Research, Estimates) to give the federal government an equity stake in the world's second-largest airline holding company.
"The stock is up slightly today as the uncertainty of strike is lifted from the company," said Jim Corridore, airline equity analyst for Standard and Poor's. "United really had no choice but to accept the PEB findings. They couldn't survive a month with a strike. But guaranteeing 37 percent wage hikes is only going to weaken a company that is already weak."
So far the only major airline to seek loan guarantees is America West Airlines (AWA: unchanged at $3.72, Research, Estimates), the nation's No. 8 airline company, which had only 16 percent of the passenger traffic of United last year.
"The reason that UAL and other carriers haven't done it (seek guarantees) yet is the government is asking a fair and high price for the guarantee -- an equity stake," said Corridore.
Concessions will still be sought
A UAL spokesman declined to comment on what's next for the carrier and whether it will seek loan guarantees or wage concessions. But Jack Creighton, the company's new CEO, said at the time of his appointment in October that he would be seeking "sacrifices" from all employees.
"It seems like the PEB said everyone should participate in concessions, but that United should give mechanics the raise, then you can talk about concessions," said Helane Becker, analyst with Buckingham Research Group. "But now I think it'll be difficult to win those concessions."
Even the PEB report said that United made a compelling case that it could be forced to seek bankruptcy protections due to the wage demands. The PEB recommended that retroactive pay not be given to mechanics immediately due to UAL's financial straights, but it also recommended that the "deferred retro pay must be adequately secured so that, in event of future bankruptcy, the IAM members may nevertheless receive their earned retro."
Both Corridore and Becker said they believe that UAL will seek the loan guarantees before it considers any kind of bankruptcy filing. But both also believe that United can not afford the new wage packages and must win new wage concessions from all its employee groups.
"They can't survive for another year the way they're currently operating," said Corridore. "They've got to get the unions to do it (grant wage concessions.)"
The recommendations now go to rank and file members of the IAM for a ratification vote. Frank Larkin, a spokesman for the union, said that it is tough to call how the vote will go.
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"On one hand there are some mechanics that are angry because it has taken so long and a third party had to be involved," said Larkin. "On the other hand many are relieved that something is on the table, and that is positive."
Part of the problem is if the members vote in favor of the wages in the PEB report, they're also giving the OK for a new round of concession talks, said Joe Tiberi, another spokesman for the union. The IAM's negotiators are reviewing the full report Wednesday and have yet to decide what recommendation, if any, it will make to rank and file members.
There are 15,000 mechanics and related employees at United covered by the PEB report, including those on layoffs. The IAM also represents 30,000 active and laid-off employees at United, including customer service employees, ramp workers, reservation clerks, and other job classes. The union and company are due to resume talk on a deal for those employees on Feb. 11. 
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