Though the skies overlooking labor relations for UAL Corp's (OTC BB: UALAQ) United often look dark and stormy, some sun shined through yesterday when the airline secured major concessions from the unions representing its pilots and flight attendants.
Pilots ratified a five-year deal that cuts pay by 11.8%, which should contribute roughly $180 million in annual savings. Meanwhile, flight attendants agreed to a five-year contract that would reduce salaries by 9.5%, contributing $131 million annually in cost cuts.
United also received good news from the courts. A judge agreed to impose a temporary 9.8% pay cut on its mechanics in lieu of an agreement. Rank and file mechanics last week overwhelmingly voted against a proposal by United that would have imposed a 5% pay cut, benefit reductions, and some outsourcing. The deal was projected to save United nearly $100 million annually. But even without this agreement the temporary reduction will provide some relief through May 31. And the airline can use all the help it can get: Just last week United reported it lost $1.6 billion during 2004.
Does any of this bode well for investors? Not yet. United hasn't reached its goal of $725 million in annual labor savings, and its lingering pension problem remains unaddressed. The airline has said it needs to cut pay and eliminate pensions to stabilize the business, secure financing, and exit bankruptcy. Opposition abounds, but management appears content to wait it out, operating under the purview of the courts till it gets what it wants.
But even if management is patient, the unions aren't. Nearly 90% of mechanics, for example, voted Friday to strike if the courts impose changes to its collective bargaining agreement with the airline. Such an action could sink the airline, so it's a threat management naturally must take seriously. Are the friendly skies back? No, not by a long shot. But there may be more smiles in the months to come than there have been over the past two years.
For related Foolishness:
- Did you hear Delta's (NYSE:DAL) song for Motley Fool Stock Advisor pick JetBlue (NASDAQ:JBLU)?
- I know discounters such as Southwest (NYSE:LUV) are all the rage, but maybe it's time you reconsidered the legacy airlines.
- You think this is turbulence? Just wait till United has to deal with its pensions again.
Do you get altitude sickness when it comes to your portfolio? Don't worry. You needn't endure nosebleeds and sleepless nights to enjoy market-beating returns. You can get paid to invest and wallop the indices all at once with Motley Fool Income Investor . Take a free 30-day trial today.
Fool contributor Tim Beyers invites you to debate the future of United, and all of the legacy airlines, at the Airlines discussion board here at Fool.com. Tim doesn't own stock in any of the companies mentioned in this article, but he has family members who are retired from UAL. To find what's in his portfolio check, Tim's Fool profile, which is here. The Motley Fool has a disclosure policy.
