This information is no longer current - it is for reference only. It is an archive review of events that took place during United Airline's Chapter 11 Bankruptcy from December 9, 2002 - February 1, 2006.

UAL Bankruptcy: 2003 Year in Review

Date: December 9, 2003
Type: AFA Article

The Year in ReviewToday marks the one year anniversary of United's bankruptcy. It's appropriate to take a moment at this time and review the events leading up to the filing, the year in bankruptcy itself, and the place in which we find ourselves today.

Within the past 15 months, collectively we have faced four furloughs, the administration's denial of United's ATSB loan guarantee application, United's bankruptcy, three ratifications of concessionary agreements, the announcement of four base closures and one surplus, the affects of the Iraqi War and SARS, CRAF and MAC flying, management's institution of an onerous no travel while on sick leave policy, three different Senior Vice Presidents of Onboard Service, two CEO's, and United's filing for management bonuses in the wake of our sacrifices for the successful restructuring of our airline. After only 1600 Flight Attendant retirements in the history of United Airlines, over 2500 of our flying partners retired within the first six months of 2003. This year has been arguably the most tumultuous time in our airline history.

On August 14, 2002 , United management announced that they were “preparing for the potential of a Chapter 11 bankruptcy filing” in the fall of 2002. With that announcement and the subsequent demand of $9 Billion in Labor concessions, the United Airlines Union Coalition was re-established to coordinate a response to the demand for concessions. The Coalition, consisting of AFA, ALPA, Districts 141 and 141-M of the IAM, the Professional Airline Flight Control Association; and the Transport Workers Union of America representing the Meteorologists and Operations Specialist also set out to fix what management had destroyed – our airline. The Coalition worked laboriously for weeks with the aid of economists, financial analysts, and finally with the encouragement of United's new CEO, Glenn Tilton to create a financial plan that would win the approval of United's Air Transportation Stabilization Board (ATSB) loan guarantee of $2 billion and avoid bankruptcy. Throughout this period, the fall of 2002 was speckled with rounds of massive employee layoffs and furloughs. United announced a need of over 4000 Flight Attendant furloughs to begin in January of 2003. We worked arduously to create a plan that would successfully win the ATSB loan guarantee because we knew that bankruptcy would mean far more hurtful cuts for labor through the company-biased bankruptcy process, place United's fate in the hands of creditors and the bankruptcy court, and pour millions of dollars disproportionately into the hands of corporate bankruptcy attorneys. As Members of AFA, we overwhelmingly ratified concessions of $75 million per year over a five and a half year term to protect our jobs, avoid the abyss of bankruptcy, and prove the daily news reports wrong that our once premier status airline was bound for the embarrassing protection of Chapter 11.

All of United's employees collectively voted on sacrifices for the Recovery Plan and together we flooded the ATSB with over 42,000 letters in support of the loan guarantee, our airline, and our jobs. On the eve of Thanksgiving, with a poor ballot turnout, the mechanics narrowly rejected their allocation of concessions, but within hours, the IAM announced that another vote would be scheduled after the holiday weekend. On December 4, 2002, as we waited for the mechanics to revote the following day, before the Union Coalition or even United management was notified, devastating news was reported on CNN that the ATSB had rejected our Recovery Plan as insufficient to grant the loan guarantee. The AFA Master Executive Council was called together for an emergency conference call as the Union Coalition met in a last ditched effort to address the ATSB's concerns to avoid the now certain bankruptcy filing necessary before United defaulted on nearly a billion in loans that were days past due. The ATSB concerns including “unreasonably optimistic” revenue projections, insufficient cost savings, the “under-funded status of United's pension plans,” and the projected value of United's collateral (airplanes, some of which were already sitting in the desert), were too great for the Coalition to surmount.

On Monday, December 9, 2002 , the press reported the largest airline bankruptcy filing in US history. When asked which airline we worked for, the once proud response of “I work for United,” which had slowly dwindled since the summer of 2000, now hit squarely rock bottom in the pit of every United employees' stomach. The questions of our future and the possible effects of bankruptcy were endless. The press reported that the bankruptcy would obliterate morale and turn away the few customers who would remain even with the uncertainty of bankruptcy. However embarrassed and dejected we felt as employees of a bankrupt airline, we reacted in a way that produced the exact opposite effect. We knew that the bankruptcy was not the fault of the employees, and for Flight Attendants, no outside pressure could be more demeaning than the daily treatment from United management. We were determined to take back our Company and prove the pundits wrong about the spirit of United's employees. We turned out the top performance records in the industry in 2002, which gave passengers vital confidence in United at its darkest hour. During this crucial time, it was the only saving grace for our black cloud Company as other airlines, creditors, and the government awaited United's sure demise. Coupled with these important employee results, we immediately ratified interim wage concessions to ensure our Company met its first debtor in possession (DIP) covenants.

Even as employees stepped forward to give the best service in the industry along with substantial interim concessions and the knowledge that United would demand much more in the bankruptcy process, United management found it “necessary” to file for unlimited executive bonuses through the first Key Employee Retention Program (KERP). At the same time, United filed a motion to accept Glenn Tilton's pre-bankruptcy employment package. AFA was the only Union to formally object to both of these motions. Our objection to the KERP program forced the Company to change their position before the court for a program that is generally accepted by bankruptcy courts as part of the bankruptcy process. On February 6, 2003 , among other amended limitations, United changed its motion by trimming the eligible participant list of managers from 7500 to 320 and limiting the total funding for the KERP to $22 million from the previous unlimited sum. The revised KERP motion was quickly accepted by the court, along with the court's acceptance of Glenn Tilton's employment package a few weeks later.

Months later, after long-term deep concessions were ratified by all of United's Union groups, the Company filed for a second KERP for “technical and professional employees.” Again, AFA was the only Union to object. Discussions prior to the court hearing and in conjunction with the Creditors Committee objection, produced a modified program that was presented to the court. The modified program reduced the number of employees who can benefit from 600 to 520 and the total cost of the program from $9.5 million to $7.5 million. With these changes the Creditors Committee withdrew its objection. In court, we again fervently argued our objection, especially in light of the deep concessions front-line employees are making for the success of the airline. Judge Wedoff's response was simply, “It's unfair, but it's required in a competitive marketplace." The judge ruled that a 20% bonus to 520 information technology people was an important part of United's bid to successfully emerge from Chapter 11 bankruptcy protection.

The KERP program filings are offensive to us as the front-line employees, but they are a prime example of why we worked so hard to avoid bankruptcy. As we have said over and over for the past year, the bankruptcy court is not labor's friend. While bankruptcy law has changed since Frank Lorenzo used the court to immediately break the labor Contracts at Continental Airlines, the new laws essentially provide for a negotiations process before concessions may be imposed through Section 1113(c) of the bankruptcy code. On April 30th, at the bankruptcy court hearing to accept the new labor contracts, Judge Wedoff confirmed that he had little choice in the Section 1113(c) process but to break the Collective Bargaining Agreement and allow the Company to impose the changes management felt were necessary for the restructuring of the airline. He explained that he was not in the airline business and could not possibly have the experience to be able to decide which areas of the Contract would need altering for the successful Reorganization of the airline, nor does the law allow him to make such decisions. He further explained that the power he had was to accept or reject our Contract with United. Just before accepting the Contracts, Wedoff made the following statement:

Let me simply advert to the remarks that I made when this case first came before the Court, and that is that the power of the Court in a situation like this is really very limited. In the context of Section 1113 of the Bankruptcy Code, for example, the only power the Court has is to either grant or deny a motion by the debtor to reject a collective bargaining agreement. It's an all or nothing proposition. The parties themselves have the opportunity to create solutions of considerably more subtlety and appropriateness for the case. And what has happened here is that the parties have done so.

As you know, United required cost saving cuts both monetarily as well as increased productivity to all existing Agreements with each Union at the Company – each for a period of six years, which was non-negotiable with the Company, the Creditors, and the Court. Productivity was a very high priority for the Company to gain approval of the Agreements from the Creditors Committee as well as the bankruptcy court. At the time United filed for Chapter 11, our total costs were among the highest in the industry. In the eyes of the court and the creditors, low costs and high productivity show long-term financial viability and success for a company. United management was adamant in requiring a great percentage of our cuts come from increased productivity, and specific Sections of our Contract were targeted for focus on achieving that savings.

In the first few months of the bankruptcy, senior management focused on a plan to fracture our airline by creating a separate low-cost carrier, code-named “Starfish,” which would have destroyed forty percent of our jobs and cannibalized our mainline carrier. We were adamantly opposed to this plan for the threat that it posed to our jobs and our airline. We clearly stated our opposition to this plan at the negotiating table, in communications to you, and publicly in the media. Ultimately, Glenn Tilton abandoned Starfish for a Low Cost Operation (LCO) business initiative that would work as part of United's mainline network, and under the same Contract as the mainline operation. This was certainly a victory for us. The LCO, now dubbed “Ted,” will give us more variety of flying with the same wages, benefits, and working conditions as the mainline operation.

Shortly after the Restructuring Agreement May 1, effective date, our jobs were again disrupted with the announcement of a surplus in Miami and base closures in Las Vegas , Philadelphia , and Taipei . In each case, we worked to explore all options for keeping Flight Attendants from being forced from their home base location. While we were able to address the issues in LAS and PHL by negotiating unprecedented electronic and Union modifications specific to those locations that reduced United's administrative and facility costs, the cancellation of flights in MIA and TPE made it impossible to negotiate any changes that could be cost effective for the Company.

Since each of us is keenly aware of where we find ourselves with each paycheck, each reassignment, each flying partner out on voluntary furlough, there's no need to continue a recount of the gloom of the past year. But where would we find ourselves without our Flight Attendant Union to represent our collective best interests and challenge the decisions and policy imposed by management? Your diligence in your profession, and support of our collective goals throughout this grueling year has been not only inspirational, but also necessary for our collective success. It's difficult to imagine using the word success after al l t hat we have endured, but when measured against alternate outcomes we must acknowledge what we have achieved together.

After months of working together to oppose United's No Travel While on Sick Leave Policy, in September of 2003, Glenn Tilton took a bold step indicative of a new vision for United Airlines by suspending the entire policy for further review. United initially stated that the policy was put into place to reduce sick leave, but failed to recognize that such policy would not dissuade a woman from giving birth, would not reduce the in fortuitous event of a Flight Attendant injured on the job, and would not change the unwelcome life-challenging event of a terminal illness or accidental medical injury. With the suspension of this policy, it was made clear that the few employees who choose to abuse our benefits will not be the benchmark for a Company-wide policy. We objected to this policy because it suggested that these same dedicated employees who are ensuring the success of the Company, abuse the benefits we are afforded. This in turn disenfranchised and demoralized United's greatest asset – its front-line employee. We thank all of you who helped us to portray the real-life consequences of the No Travel While on Sick Leave Policy.

The other United employee Unions, new United management, the media, Capitol Hill, and the public are waking to the realization that Flight Attendants have a strength of character and resolve to tackle the circumstances set before us and determine our future. We have all come to some form of reconciliation that the job we do out on the line today is considerably different than the one we signed up for at the beginning of our career, and different from even as short a time as one year ago. As our industry continues its massive transformation, it's imperative that we remain diligent and united in our efforts to demand the best conditions for our job.

The importance of our Contractual protections may be more relevant to each of us than ever before, and individual vigilance to all of our Contractual protections will prove invaluable to ensuring our collective rights. Our Financial Review/Contract Interpretation Committee has been hard at work with the Company to ensure that all of the Contractual language reflects the Contractual changes negotiated and ratified by the Membership. This process is in the final stage of editing and is expected to be completed by the end of the year. Once we confirm the complete accuracy of the entire written Contract, both parties will be able to “sign” the document, at which time the Contractual clock of sixty days will start ticking for the Company's responsibility to print and distribute the Contract to all Flight Attendants. Once the layout of the Contract is complete, we will post it electronically on our website as quickly as possible.

Continue to contact your Local Council AFA office with written documentation if you encounter any Contractual violation, or irregularity. As the industry shifts and changes, it may be more important than ever that each of us continue to identify the issues we encounter and ensure that AFA leaders are informed of the situation. The efforts that each of us has put forward in ensuring United's success must be mirrored as we collectively work to defend and strengthen our rights as United Flight Attendants.

United's opportunity to recover and restructure truly can be credited to the performance records generated in large part by the front-line employees. In 2004, our Contract provides that results such as these will provide quarterly bonuses to all United employees through a Success Sharing Plan. Success Sharing was negotiated as part of the Restructuring Agreement for all Union Contracts and will take part in two different plans, Performance Incentive and Profit Sharing. The Profit Sharing Plan will not begin until 2005, but Performance Incentive will start in just three weeks and will provide opportunity for a pensionable bonus that can amount to as much as 10% of our annual wages, including base, holiday, sick, vacation, overrides and premium pay. Senior management will set the goals annually with the approval of the United Board of Directors, and our Contract requires that a large portion of management's salary be tied to these goals so that our Management will have an invested interest in our Company's success. This will also ensure that the goals are attainable for all of us to profit. More information about this program will be available as we approach the New Year.

Even as we look forward to sharing in the success of our Company, United still faces serious issues prior to its exit from Chapter 11. United is seeking private or government exit financing to emerge from bankruptcy. Just today, Chicago Crain's reported that United has secured financing with the reputable lending agencies Citigroup and J.P. Morgan Chase in the event the government awards the ATSB loan guarantee. In addition to obtaining exit financing through securing confidence in the lending community or obtaining the ATSB loan guarantee from the government, before United can successfully emerge from bankruptcy, a Plan of Reorganization must be accepted by the court. The Plan must satisfy debts owed pre-bankruptcy petition, and will include a new capital and governance structure.

At this point, United has four major issues to resolve before completing an updated business plan, the foundation of the Plan of Reorganization. The four issues include pensions, concluding negotiations with Express carriers, and finalizing aircraft negotiations. Additionally, a new business plan must focus on revenue generation for future business success. Initiatives such as the new low cost operation beginning in Denver in February will be included in the plan along with creative answers to the complicated fare structures failing the legacy carriers today.

The pension issue is of great relevance to employees and our future. Pension plans have been negatively affected by historically low 30-year Treasury bond interest rates and the decline in stock market values. Many companies with under-funded pension plans are being required to make accelerated payments called Deficit Reduction Contributions (DRC). The DRC rules originally were designed to deter companies from under-funding their pensions in a stable economic climate by forcing penalties on companies if the pension fund assets fall below 80% of projected obligations. These rules are arbitrary and follow no financial logic. United's pension plans were fully funded as recently as 2000, but with recent events are now under-funded and subject to accelerated DRC.

It is important to know that United can fund its pension obligations on the standard, non-accelerated timetable. United intends to continue to fund its pension obligations. Temporary DRC legislative relief will help United and other companies to protect the pension benefits of millions of American workers and retirees for the future. DRC relief is needed to protect the pension benefits of United Flight Attendants, retirees, and all of United's other employees as the Company works to achieve financial recovery and exit Chapter 11.

AFA, management and all United Unions have been working collaboratively in support of government legislation for pension funding reform. The United Master Executive Council, our Insurance & Retirement Committee, our Government Affairs Committee, our consultants and advisors are steadfast in our resolve to ensure the integrity of Flight Attendant pension benefits, and we will continue to keep you closely advised of these efforts.

Thank you for continuing to identify the issues important to all of us. You inspire each AFA volunteer to champion our causes with advocacy that is passionate and steadfast. In the best of times, and in the worst of times, our solidarity will lead us to our future success.

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