Halfnut
17th Dec 2004, 22:43
December 16, 2004
Dear Fellow Pilot,
Today, following months of analysis, study and deliberation of United Airlines' current legal and financial situation, the United MEC unanimously accepted and endorsed for your ratification a tentative agreement with the Company in lieu of the Company's Section 1113 term sheet proposal. It was a decision which none of the MEC members reached lightly, and it came only after the group realized that a negotiated settlement - not a litigated outcome - best serves you and your career.
All of you are well aware of the challenges the past two years have brought to our pilot group. Losses in revenue and oil prices still at or higher than envisioned in the 2005 and 2006 UAL business plan have dealt a crippling blow to an airline already beleaguered by financial instability.
Following the ratification and implementation of a Restructuring Agreement in May 2003 which brought dramatic wage cuts and changes to our work rules, the last thing we expected or desired was the prospect of another round of concessionary negotiations. Current economic realities that place our Company in a precarious financial situation required the MEC to make this difficult decision.
We were faced with a difficult choice regarding the Company's 1113 term sheet: negotiate with the Company to reach a consensual agreement that would inevitably involve further concessions or proceed in the bankruptcy court where we faced a dangerous risk of an imposed, and totally unacceptable, outcome. Your MEC, following careful study and analysis, determined that the responsible approach to protecting what we have left in our current collective bargaining agreement was to enter into a consensual agreement with the Company.
Included with this letter is a copy of the Tentative Agreement that the MEC endorsed, along with a summary of its contents and a comparison to the Company's term sheet. It is now up to you to determine which direction we will take regarding the Company's 1113 proposal. If you ratify this TA, it modifies the collective bargaining agreement, subject to approval of the court. If not, there will be litigation in the bankruptcy court where the company will seek to reject our current agreement. Voting will begin shortly, and will close early in January. ALPA will mail to each of you voting instructions prior to the opening of balloting.
Please study this tentative agreement carefully. We are supplying you a great deal of information to help you make an informed decision. Your council representatives will be available in operations to answer your questions. We will be conducting a series of "road shows" in each domicile over the next couple of weeks to explain this tentative agreement in greater detail, and to address your questions. We urge you to carefully monitor your e-mail and the MEC website, as new information and updates will be provided as they become available.
It is important for you to ask the necessary questions to gain a full understanding of the issues. You have an obligation to make an informed decision based on facts not emotion, speculation or rumor.
As a union, our goal has always been to do the right thing based on the circumstances we face at the time, and this situation is no different. The decisions that await us are not easy ones. But, together, we can provide the leadership to help free our Company from the crippling grip of bankruptcy and restore it to its rightful place as the world's preeminent airline. As I have said to you previously, this is your union, and your Company.
I urge you to exercise your right to decide responsibly.
Fraternally,
Captain Mark Bathurst
Chairman, UAL-MEC
------------------------------------------------
Summary of Bankruptcy Exit
Tentative Agreement
December 16, 2004
1. Contract Extension:
Contract amendable date extended 8 months until December 31, 2009,
Negotiations commence no later than May 01, 2009.
Company agreed to enhance mediation process to shorten next Section 6 negotiation.
2. Hourly Pay Rates:
Hourly rates reduced by 14.7%,
No change to current book raises of 1.5% in May 06, 07, 08, 09,
Additional 1% raise on January 1, 2008, (MEC option to convert to C fund contribution, See # 5 below.)
See Exhibit A of the TA for wage cut tables.
3. Other Contract Changes (See Exhibits B-1 and B-2):
a. ALPA Concessions:
Eliminate International Hourly Override,
Eliminate Night Premium,
Eliminate Future Retiree Life Insurance,
b. Company Concessions:
Eliminate moveable RDO's for domestic reserve assignments.
4. Defined Benefit Pension Plan:
ALPA will not oppose A Plan Termination if Bankruptcy Court determines it is required for exit,
Company will not terminate and will oppose efforts to terminate prior to the earlier of May 1, 2005 or bankruptcy exit.
5. Pension Contributions:
Current 9 % B Plan continues,
C Plan defined as an additional 6% contribution to PDAP,
Optional - the January 01, 2008 1.0% pay raise can be converted to a C Plan contribution
making it a total of 7% at the MEC's option.
If a new DB plan is started for any employee group, Pilot group has the option to continue CPlan or accept comparable plan
6. Profit Sharing See Exhibit C
7. Convertible Notes - See Exhibit D
8. Distribution Agreement - See Exhibit E
9. Additional Non-Labor Savings - The company must pursue an additional $150 million savings beyond the target amount already identified.
10. Administrative claim Pilot group reimbursed for twice the pilot group cash savings in the event of termination under paragraph 16. Claim extinguished on exit from bankruptcy provided the company's plan of reorganization is fully consistent with the TA.
11. Indemnity - See Exhibit F
12. Plan Release and Exculpation Liability exemption for negotiating the Bankruptcy Agreement.
13. Assumption of the Pilot Agreement UAL agrees to accept this agreement on exit from bankruptcy.
14. Bankruptcy Actions The Company and the Association shall mutually pursue court approval of this LOA. The Association shall support all further requests by the Company for any exclusivity extensions.
15. Conditions to Effectiveness Must meet six conditions to effect TA agreement (See Agreement).
16. Termination Rights Eight protections in which we revert to CBA 2003 if certain obligations are not met (See Agreement).
17. Fees and Expenses - See Exhibit G
18. Agreement This LOA is a final, binding and conclusive commitment between the Company and the Association.
19. Amendments; Waiver Amendments in writing only
20. Notices Legal notice requirements.
21. Counterparts Legal stipulation on signatures and documents.
22. Headings; Construction LOA language construction and interpretation rules
Exhibit A - Revised Pay Rate Tables See Agreement.
Exhibit B - Other Contract Revisions, See #3 above
Exhibit C - Profit Sharing:
Replaces current profit sharing plan
Distributed as wages (401k Deferral Optional)
Profit Sharing Pool - $10 million trigger
o 7.5% of Pre-Tax Earnings in years 2005 and 2006
o 15% of Pre-Tax Earnings thereafter
Pilot Pro Rata Share - Individual Pilot Earnings/Aggregate Employee Earnings
Eligibility Any pilot who has completed one year of service as of Dec 31st of measured year.
Payment Not later than April 30th of the following year.
Exhibit D - Convertible Notes:
$550,000,000.00 value.
Issued NLT 180 days following bankruptcy exit.
Term 15 years from issuance date
Conversion Rights Convertible notes into common stock
Notes to trade at or near face value at issuance
Allocation and mechanics of pilot allocation to be determined by the MEC
Exhibit E - Amended Distribution Agreement:
New stock allocation formula includes previous allocated amount plus an additional $300 million based on 20 months of cost savings from new agreements.
Clause to capture any proportional concession based upon the other employee groups final
agreements.
Exhibit F - Indemnity Agreement: Legal provision designed to protect the Association and its employees, agents, officers, and members from any and all claims made in connection with the Agreement.
Exhibit G - Fees and Expenses:
ALPA reimbursed for fees and expenses associated with entering into this agreement.
Payment of MEC financial advisors by the company.
MEC financial advisors to reimburse ALPA for fees and expenses incurred during the bankruptcy process.
Pilots Won't Fight UAL on Pensions
Union to Get $550 Million In Convertible Notes in 2005, Setting Precedent for Others
By: SUSAN CAREY
Staff Reporter of THE WALL STREET JOURNAL
December 17, 2004
CHICAGO -- A concessionary labor contract approved yesterday by the leadership of the pilots union at United Airlines contains an unusual giveback: the Air Line Pilots Association agrees that it won't oppose United parent UAL Corp.'s efforts to terminate the group's generous defined-benefit pension plan.
The agreement is aimed at helping UAL cut expenses as it seeks to restructure under bankruptcy-court protection. In return, UAL, upon exiting from that protection next year, would issue to the union $550 million in convertible notes that the 6,600 active pilots could sell in the capital market to raise money to cover a portion of the pension shortfall they would encounter, according to the union's investment banker.
It is rare for a union to agree to give up its defined-benefit pensions for a less-lucrative plan. But the move comes as the company prepares to ask the court to dissolve its labor contracts and pension plans, unless it could reach new labor accords first. The pilots union also agreed to accept a 15% pay cut, which is in addition to at least a 30% cut in pay that took effect last year. The agreement still must be ratified by the union's membership. UAL also will be seeking cost concessions from its other unions.
The unusual concessions in the new pilots labor agreement, especially in regard to the pension plan, could serve as a template for cost savings at other airlines, which are struggling amid a persistent recession in the industry. US Airways Group Inc. entered bankruptcy-protection proceedings in September for the second time in two years. Other carriers, including Delta Air Lines and Continental Airlines, have sought concessions.
"We brought this concept to the company," said Stephen Presser, the union's investment banker. "It could be replicated for other work groups."
Union negotiators agreed to the terms of the new pact earlier this week, and the union's leadership signed off on it yesterday.
UAL hopes to foist its four pension plans on to Pension Benefit Guaranty Corp. the quasigovernmental pension insurer, which would save UAL from making more than $4 billion in contributions through 2008. The PBGC opposes UAL's plans because it says the pension debt of $8.3 billion is a legally binding obligation to UAL's 123,000 active and retired workers. However, if UAL can show the agency and the court that it couldn't survive with that financial burden, the pension agency could be obliged to take over the plans.
Among UAL employees, the pilots likely would be disproportionately harmed by the plan termination. They are the highest-paid airline employees and normally enjoy lucrative pension payments. But because, by law, they must retire at age 60, they would get much lower PBGC pension payouts. UAL's other employees, who earn less and can work until 65 or beyond, wouldn't see their pension benefits curtailed nearly as much.
"I've never seen this way of settling a pension termination," said Mr. Presser, speaking of the issuance of the notes convertible into new UAL stock. "It's a robust capital-market solution to an otherwise unsolvable pension problem."
Capt. Mark Bathurst, chairman of the ALPA branch at United, said the leadership council unanimously endorsed the agreement. He said the council recognized that United can't secure bankruptcy-exit financing without changing its cost structure. He said the convertible-note provision "will be the cornerstone in making the contract acceptable" to the members.
Defined-benefit pensions are a cherished component of compensation in many old-line companies' labor contracts. Unions tend to want to preserve those benefits as long as possible. Some unions have litigated when their plans were terminated, often in bankruptcy, and taken over by the PBGC. For ALPA, which sets the pattern for bargaining at other unions, to agree to let the plan go seems to indicate that the union understands UAL's financial predicament.
The five-year agreement now goes to the pilots for a ratification vote in early January. The group already agreed last year to $1.1 billion in annual cost savings by cutting pay and increasing productivity by 15%. This new deal provides UAL with about $180 million to $190 million more in annual savings, not including the cash savings that would accrue to UAL if it terminates the pension plan.
A seventh-year Boeing 737-300 captain would earn $118.63 an hour. That captain earned $181.93 an hour when the company filed for bankruptcy protection two years ago. Under a contract reached in early 2003, that hourly rate fell to $139.08.
UAL is asking its employees for a total of $725 million in additional wage and benefit savings, and hopes to save $639 million a year in cash from sidestepping the pension obligations and moving to cheaper defined-contribution retirement plans for its current workers. In the pilots' case, if the new contract is approved, the airline would put 6% of their annual pay into a new retirement plan. The group would continue to receive 9% of their compensation contributed to an existing 401(k)-type plan.
ALPA doesn't represent the rights of United's 6,000 retired pilots, and this tentative agreement doesn't pertain to them.
The retirees have created their own committee to fight the termination in bankruptcy court, or at least to try to soften the blow to their constituents.
UAL earlier this week imposed concessions on its salaried and management workers and is in talks with its other unions about revised contracts that would provide further savings and allow it to terminate three other defined-benefit plans. In case the unions don't agree by next month, UAL has started the legal process of asking the bankruptcy judge to allow it to annul the existing contracts so the airline can impose terms of the employees.
A 1.4 MB .pdf file for United's Tentative Agreement can be down loaded here.
http://www.apapdp.org/cms/staticfiles/pdf/UAL_TA_121704.pdf
Dear Fellow Pilot,
Today, following months of analysis, study and deliberation of United Airlines' current legal and financial situation, the United MEC unanimously accepted and endorsed for your ratification a tentative agreement with the Company in lieu of the Company's Section 1113 term sheet proposal. It was a decision which none of the MEC members reached lightly, and it came only after the group realized that a negotiated settlement - not a litigated outcome - best serves you and your career.
All of you are well aware of the challenges the past two years have brought to our pilot group. Losses in revenue and oil prices still at or higher than envisioned in the 2005 and 2006 UAL business plan have dealt a crippling blow to an airline already beleaguered by financial instability.
Following the ratification and implementation of a Restructuring Agreement in May 2003 which brought dramatic wage cuts and changes to our work rules, the last thing we expected or desired was the prospect of another round of concessionary negotiations. Current economic realities that place our Company in a precarious financial situation required the MEC to make this difficult decision.
We were faced with a difficult choice regarding the Company's 1113 term sheet: negotiate with the Company to reach a consensual agreement that would inevitably involve further concessions or proceed in the bankruptcy court where we faced a dangerous risk of an imposed, and totally unacceptable, outcome. Your MEC, following careful study and analysis, determined that the responsible approach to protecting what we have left in our current collective bargaining agreement was to enter into a consensual agreement with the Company.
Included with this letter is a copy of the Tentative Agreement that the MEC endorsed, along with a summary of its contents and a comparison to the Company's term sheet. It is now up to you to determine which direction we will take regarding the Company's 1113 proposal. If you ratify this TA, it modifies the collective bargaining agreement, subject to approval of the court. If not, there will be litigation in the bankruptcy court where the company will seek to reject our current agreement. Voting will begin shortly, and will close early in January. ALPA will mail to each of you voting instructions prior to the opening of balloting.
Please study this tentative agreement carefully. We are supplying you a great deal of information to help you make an informed decision. Your council representatives will be available in operations to answer your questions. We will be conducting a series of "road shows" in each domicile over the next couple of weeks to explain this tentative agreement in greater detail, and to address your questions. We urge you to carefully monitor your e-mail and the MEC website, as new information and updates will be provided as they become available.
It is important for you to ask the necessary questions to gain a full understanding of the issues. You have an obligation to make an informed decision based on facts not emotion, speculation or rumor.
As a union, our goal has always been to do the right thing based on the circumstances we face at the time, and this situation is no different. The decisions that await us are not easy ones. But, together, we can provide the leadership to help free our Company from the crippling grip of bankruptcy and restore it to its rightful place as the world's preeminent airline. As I have said to you previously, this is your union, and your Company.
I urge you to exercise your right to decide responsibly.
Fraternally,
Captain Mark Bathurst
Chairman, UAL-MEC
------------------------------------------------
Summary of Bankruptcy Exit
Tentative Agreement
December 16, 2004
1. Contract Extension:
Contract amendable date extended 8 months until December 31, 2009,
Negotiations commence no later than May 01, 2009.
Company agreed to enhance mediation process to shorten next Section 6 negotiation.
2. Hourly Pay Rates:
Hourly rates reduced by 14.7%,
No change to current book raises of 1.5% in May 06, 07, 08, 09,
Additional 1% raise on January 1, 2008, (MEC option to convert to C fund contribution, See # 5 below.)
See Exhibit A of the TA for wage cut tables.
3. Other Contract Changes (See Exhibits B-1 and B-2):
a. ALPA Concessions:
Eliminate International Hourly Override,
Eliminate Night Premium,
Eliminate Future Retiree Life Insurance,
b. Company Concessions:
Eliminate moveable RDO's for domestic reserve assignments.
4. Defined Benefit Pension Plan:
ALPA will not oppose A Plan Termination if Bankruptcy Court determines it is required for exit,
Company will not terminate and will oppose efforts to terminate prior to the earlier of May 1, 2005 or bankruptcy exit.
5. Pension Contributions:
Current 9 % B Plan continues,
C Plan defined as an additional 6% contribution to PDAP,
Optional - the January 01, 2008 1.0% pay raise can be converted to a C Plan contribution
making it a total of 7% at the MEC's option.
If a new DB plan is started for any employee group, Pilot group has the option to continue CPlan or accept comparable plan
6. Profit Sharing See Exhibit C
7. Convertible Notes - See Exhibit D
8. Distribution Agreement - See Exhibit E
9. Additional Non-Labor Savings - The company must pursue an additional $150 million savings beyond the target amount already identified.
10. Administrative claim Pilot group reimbursed for twice the pilot group cash savings in the event of termination under paragraph 16. Claim extinguished on exit from bankruptcy provided the company's plan of reorganization is fully consistent with the TA.
11. Indemnity - See Exhibit F
12. Plan Release and Exculpation Liability exemption for negotiating the Bankruptcy Agreement.
13. Assumption of the Pilot Agreement UAL agrees to accept this agreement on exit from bankruptcy.
14. Bankruptcy Actions The Company and the Association shall mutually pursue court approval of this LOA. The Association shall support all further requests by the Company for any exclusivity extensions.
15. Conditions to Effectiveness Must meet six conditions to effect TA agreement (See Agreement).
16. Termination Rights Eight protections in which we revert to CBA 2003 if certain obligations are not met (See Agreement).
17. Fees and Expenses - See Exhibit G
18. Agreement This LOA is a final, binding and conclusive commitment between the Company and the Association.
19. Amendments; Waiver Amendments in writing only
20. Notices Legal notice requirements.
21. Counterparts Legal stipulation on signatures and documents.
22. Headings; Construction LOA language construction and interpretation rules
Exhibit A - Revised Pay Rate Tables See Agreement.
Exhibit B - Other Contract Revisions, See #3 above
Exhibit C - Profit Sharing:
Replaces current profit sharing plan
Distributed as wages (401k Deferral Optional)
Profit Sharing Pool - $10 million trigger
o 7.5% of Pre-Tax Earnings in years 2005 and 2006
o 15% of Pre-Tax Earnings thereafter
Pilot Pro Rata Share - Individual Pilot Earnings/Aggregate Employee Earnings
Eligibility Any pilot who has completed one year of service as of Dec 31st of measured year.
Payment Not later than April 30th of the following year.
Exhibit D - Convertible Notes:
$550,000,000.00 value.
Issued NLT 180 days following bankruptcy exit.
Term 15 years from issuance date
Conversion Rights Convertible notes into common stock
Notes to trade at or near face value at issuance
Allocation and mechanics of pilot allocation to be determined by the MEC
Exhibit E - Amended Distribution Agreement:
New stock allocation formula includes previous allocated amount plus an additional $300 million based on 20 months of cost savings from new agreements.
Clause to capture any proportional concession based upon the other employee groups final
agreements.
Exhibit F - Indemnity Agreement: Legal provision designed to protect the Association and its employees, agents, officers, and members from any and all claims made in connection with the Agreement.
Exhibit G - Fees and Expenses:
ALPA reimbursed for fees and expenses associated with entering into this agreement.
Payment of MEC financial advisors by the company.
MEC financial advisors to reimburse ALPA for fees and expenses incurred during the bankruptcy process.
Pilots Won't Fight UAL on Pensions
Union to Get $550 Million In Convertible Notes in 2005, Setting Precedent for Others
By: SUSAN CAREY
Staff Reporter of THE WALL STREET JOURNAL
December 17, 2004
CHICAGO -- A concessionary labor contract approved yesterday by the leadership of the pilots union at United Airlines contains an unusual giveback: the Air Line Pilots Association agrees that it won't oppose United parent UAL Corp.'s efforts to terminate the group's generous defined-benefit pension plan.
The agreement is aimed at helping UAL cut expenses as it seeks to restructure under bankruptcy-court protection. In return, UAL, upon exiting from that protection next year, would issue to the union $550 million in convertible notes that the 6,600 active pilots could sell in the capital market to raise money to cover a portion of the pension shortfall they would encounter, according to the union's investment banker.
It is rare for a union to agree to give up its defined-benefit pensions for a less-lucrative plan. But the move comes as the company prepares to ask the court to dissolve its labor contracts and pension plans, unless it could reach new labor accords first. The pilots union also agreed to accept a 15% pay cut, which is in addition to at least a 30% cut in pay that took effect last year. The agreement still must be ratified by the union's membership. UAL also will be seeking cost concessions from its other unions.
The unusual concessions in the new pilots labor agreement, especially in regard to the pension plan, could serve as a template for cost savings at other airlines, which are struggling amid a persistent recession in the industry. US Airways Group Inc. entered bankruptcy-protection proceedings in September for the second time in two years. Other carriers, including Delta Air Lines and Continental Airlines, have sought concessions.
"We brought this concept to the company," said Stephen Presser, the union's investment banker. "It could be replicated for other work groups."
Union negotiators agreed to the terms of the new pact earlier this week, and the union's leadership signed off on it yesterday.
UAL hopes to foist its four pension plans on to Pension Benefit Guaranty Corp. the quasigovernmental pension insurer, which would save UAL from making more than $4 billion in contributions through 2008. The PBGC opposes UAL's plans because it says the pension debt of $8.3 billion is a legally binding obligation to UAL's 123,000 active and retired workers. However, if UAL can show the agency and the court that it couldn't survive with that financial burden, the pension agency could be obliged to take over the plans.
Among UAL employees, the pilots likely would be disproportionately harmed by the plan termination. They are the highest-paid airline employees and normally enjoy lucrative pension payments. But because, by law, they must retire at age 60, they would get much lower PBGC pension payouts. UAL's other employees, who earn less and can work until 65 or beyond, wouldn't see their pension benefits curtailed nearly as much.
"I've never seen this way of settling a pension termination," said Mr. Presser, speaking of the issuance of the notes convertible into new UAL stock. "It's a robust capital-market solution to an otherwise unsolvable pension problem."
Capt. Mark Bathurst, chairman of the ALPA branch at United, said the leadership council unanimously endorsed the agreement. He said the council recognized that United can't secure bankruptcy-exit financing without changing its cost structure. He said the convertible-note provision "will be the cornerstone in making the contract acceptable" to the members.
Defined-benefit pensions are a cherished component of compensation in many old-line companies' labor contracts. Unions tend to want to preserve those benefits as long as possible. Some unions have litigated when their plans were terminated, often in bankruptcy, and taken over by the PBGC. For ALPA, which sets the pattern for bargaining at other unions, to agree to let the plan go seems to indicate that the union understands UAL's financial predicament.
The five-year agreement now goes to the pilots for a ratification vote in early January. The group already agreed last year to $1.1 billion in annual cost savings by cutting pay and increasing productivity by 15%. This new deal provides UAL with about $180 million to $190 million more in annual savings, not including the cash savings that would accrue to UAL if it terminates the pension plan.
A seventh-year Boeing 737-300 captain would earn $118.63 an hour. That captain earned $181.93 an hour when the company filed for bankruptcy protection two years ago. Under a contract reached in early 2003, that hourly rate fell to $139.08.
UAL is asking its employees for a total of $725 million in additional wage and benefit savings, and hopes to save $639 million a year in cash from sidestepping the pension obligations and moving to cheaper defined-contribution retirement plans for its current workers. In the pilots' case, if the new contract is approved, the airline would put 6% of their annual pay into a new retirement plan. The group would continue to receive 9% of their compensation contributed to an existing 401(k)-type plan.
ALPA doesn't represent the rights of United's 6,000 retired pilots, and this tentative agreement doesn't pertain to them.
The retirees have created their own committee to fight the termination in bankruptcy court, or at least to try to soften the blow to their constituents.
UAL earlier this week imposed concessions on its salaried and management workers and is in talks with its other unions about revised contracts that would provide further savings and allow it to terminate three other defined-benefit plans. In case the unions don't agree by next month, UAL has started the legal process of asking the bankruptcy judge to allow it to annul the existing contracts so the airline can impose terms of the employees.
A 1.4 MB .pdf file for United's Tentative Agreement can be down loaded here.
http://www.apapdp.org/cms/staticfiles/pdf/UAL_TA_121704.pdf