Agreement vs. 1113(c)

We have been asked by many Members at our recent Road-shows, "What were the circumstances and considerations that lead to our decision to reach an agreement with United management rather than proceed with the Section 1113 hearing on January 7?"

First, we took into account the extraordinary confluence of events that occurred on January 7. At that point we had reviewed tens of thousands of pages of documents that United had produced and had discovered evidence that United would certainly find troubling.

On January 7 the Bankruptcy Court announced that it would not approve the agreement between ALPA and United. This had the effect of also nullifying the company's agreements with TWU and PAFCA since they were linked to court approval of the ALPA tentative contract. Suddenly, United had gone from having three agreements in hand to having none.

Second, we considered whether these circumstances were affecting negotiations. The best evidence was the fact that the company completely reversed its position regarding Success Sharing. Throughout the negotiations the company demanded that the Flight Attendants fully participate in Success Sharing. We were adamant, however, that the Flight Attendants should not take wage cuts in order to finance this program. The company had set aside approximately $32 million for the Flight Attendants' portion of Success Sharing. We insisted that these funds be used to offset or reduce the total amount of concessions the company claimed it needed from the Flight Attendants. On January 7 the company agreed to substantially reduce the Flight Attendants participation in Success Sharing and to credit us with the resulting cost savings of $26 million.

Third, we had to consider the risks of litigation. Unlike other court proceedings, a Chapter 11 bankruptcy has a single principal purpose - to allow the debtor, in this case United, to emerge from bankruptcy protection as a reorganized company. Generally, the provisions of the Bankruptcy Code and the predisposition of Bankruptcy Judges, reflect this objective.

In this light we had to consider how the Court would view the company's allegations made in support of its claim that the proposed concessions were "necessary". The core contention upon which United relied was that the increase in fuel prices would cost the airline an additional $1.2 billion in 2005. In the days preceding the hearing there was no clear sign that the price of oil was dropping and, in fact, it had begun to increase yet again.

We also took into account Judge Wedoff's statement regarding the latitude he has in considering a Section 1113 motion. In an earlier hearing he stated that his choices were very limited - either he granted or denied the motion. He could not cherry pick the various concessions that comprised the company's proposal so as to create his own version of a Tentative Agreement. Only the parties themselves could do that. The Court's role was simply to decide the Section 1113 motion - up or down - either it would or would not authorize the Debtor to reject the collective bargaining agreement.

Knowing that the Court only had two options, we had to consider the impact of each. If United were allowed to reject our agreement, the Contract would be cancelled or eliminated in its entirety. At that point United would impose the terms over which it had negotiated. Without an agreement, however, United would contend that it could make additional changes to the Flight Attendants' wages, benefits and working conditions as it alone deemed necessary.

Moreover, once given the authority to reject, the company undoubtedly would seek an injunction against our engaging in CHAOS or any strike activity. Although we think the company's position is without merit, it is possible that a court would conclude otherwise.

If the Court were to choose the second option and deny United's motion, the Section 1113 process would not end. Instead the company would consider the reasons for the Court's decision and adjust its position accordingly. Within days of the Judge's ruling it would submit a revised concessionary package to AFA and would also renew its motion for authority to reject our Contract. The Section 1113 process would then begin all over again.

Weighing all of these factors, we decided to take advantage of the very unique circumstances that existed on January 7. We determined that the certainty of an established, enforceable collective bargaining agreement that minimizes the harm to our Members as much as reasonably possible was a far better outcome than the risk of litigation and the possible loss of our entire Contract.

Finally, some have asked what would happen if the Membership were to reject this Tentative Agreement. In all likelihood the company would start the Section 1113 process were it ended on January 7, when the hearing was scheduled to begin. There is, however, one consideration in addition to the others we've already described. Each of the other unions has agreed to provide their share of concessions. Once ratified the company would undoubtedly argue that the "fair and equitable" standard of Section 1113 dictates that AFA must make a contribution comparable to those made by other employees.

Alternatively, the company could decide to adopt the route it took with the IAM - asking the Court to impose concessions that would remain in effect until April 11. During this interim period the company has imposed upon the IAM-represented employees a double digit wage cut and a 30% reduction in sick leave pay. The wage cut and reduction in sick leave pay until April for the IAM is equivalent to the target amount United sought in their original 1113(c) filing, keeping their group proportionate in meeting concessionary goals. If, as of April 11, the IAM has not agreed to a five year concessionary package, United will renew its Section 1113 motion.

We hope this clarifies the reasoning behind why reaching a Tentative Agreement with the company is preferable to continuing the 1113(c) process in court. We will continue to provide answers to questions we receive, in an effort to provide you with all the information you need to make an informed decision about our collective future.

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