Two Tracks within Section 1113 of the Bankruptcy Code

Section 1113 of the Bankruptcy Code allows a Company to modify or reject a collective bargaining agreement in two different ways.

Section 1113 (c) requires a company (the “debtor”) to satisfy a number of criteria before a court will allow it to reject or modify a collective bargaining agreement. Generally, the Company must make a proposal that contains only those changes that are necessary to the Debtor’s reorganization; it must provide all relevant information the Union needs to evaluate the proposal; it must negotiate in good faith; and the proposal must be fair and equitable to all parties.

Section 1113 (e) allows a debtor to ask the court for temporary or interim relief on an emergency basis. The Company must show that the changes sought are “essential to the continuation of the debtor’s business” or needed “to avoid irreparable damage” to the Company.

Today the Company filed a motion that effectively establishes two tracks for achieving the right to modify or reject our collective bargaining agreement. The Company has begun the process for obtaining relief under Section 1113 (c) (“Track C”). It is also pursuing interim relief under Section 1113 (e) (“Track E”). What makes this process somewhat complicated is that United is proceeding on both tracks at the same time.

The Company is asking the Court to permit it to reject our Contract under Section 1113(c). The Company’s decision to file this motion on December 27 is based upon the requirements established by its lenders and the timeline set forth in Section 1113 (c). On or about February 16, the company must satisfy certain covenants with the banks who are providing United with financing (the Debtor in Possession financing or “DIP). United has stated that it can not meet those requirements unless it has concessionary Contracts in place. Under Section 1113(c) it takes between forty-four days and fifty-one days from the date the motion is filed to receive a ruling from the court. By filing on December 27 the fifty-one day period elapses on February 16.

While the time on Track C is running, the Company will also be moving along Track E. It will seek interim agreements with all of United’s Unions except the IAM. (The IAM decided not to negotiate an interim agreement.) If AFA, ALPA, TWU and PAFCA ratify their interim agreements, United will ask the court to impose Section 1113(e) relief against the IAM. All interim modifications would remain in effect until the court enters an order under Section 1113 (c) or a final agreement is reached on a modified Contract. Which course the Company takes depends upon whether or not these conditions are met:

First, if all the Unions ratify their interim agreements and 1113(e) is imposed on the IAM, the Company will delay its efforts on Track C. It will withdraw its 1113 (c) motion and will not re-file it before March 15, 2003.

United has determined that the cost-savings achieved in the interim agreements would be sufficient to satisfy the DIP requirements until May 1, 2003. On that date, according to the Company, it will need to have in place more substantial cuts than those provided by the interim modifications.

Using May 1, 2003 as its deadline and accounting for the scheduling requirements of Section 1113 (c), the Company would therefore need to file a new Section 1113 (c) motion on or shortly after March 15, 2003.

Second, if a Union rejects its interim agreement or Section 1113 (e) relief is not imposed on the IAM, the Company would stop moving on Track E but would continue on Track C. The 1113(c) motion to reject our Contract would still be decided by February 16, 2003, the end of the fifty-one day period that began on December 27, the date the 1113 (c) motion was filed.

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