A federal bankruptcy judge threw out a disputed new five-year contract between United Airlines and its pilots Friday, dealing the bankrupt carrier a significant setback in its efforts to lock in lower labor costs without a court order.
The contract, which called for 15 percent pay cuts, drew opposition from labor groups and others who complained that it would pave the way for United to eliminate traditional pension plans.
Bankruptcy Judge Eugene Wedoff said several aspects of the proposed agreement would "unduly tilt the bankruptcy process," including the requirement that other unions' pension plans also be terminated.
Wedoff said he hopes the company and pilots can craft a contract based on the previous one, but he 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, citing the pilots' efforts to craft an agreement and the sacrifices they have already made.
The decision was a disappointment for United, spokeswoman Jean Medina said.
"We think we had an agreement that was fair and equitable," Medina said. "But as the judge indicated, we're going to sit back down at the table."
United, a unit of Elk Grove Village, Illinois-based UAL Corp., has said it needs US$725 million in annual labor cost reductions in place by mid-January in order to be able to line up the financing needed for it to emerge from Chapter 11 bankruptcy.
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 US$28 million a month -- US$14 million in forgone cost savings and US$14 million in penalties -- under terms of the deal.
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 said.
Some creditors also were critical of the pilots' deal, including the federal Pension Benefit Guaranty Corp., which estimates it would be responsible for about US$1.4 billion of the plan's US$2.9 billion in underfunded assets if the proposed agreement is approved.
Outside the courtroom, contract negotiations continued Friday between United and unions representing its flight attendants and mechanics.
Barring last-minute agreements with all three unions whose contracts remain unresolved, a bankruptcy court trial was set to begin later Friday on United's motion to toss out existing labor contracts and have its own terms imposed. That hearing could continue all next week before the judge issues his verdict.