Down-to-the wire talks to keep airlines afloat

The next few days will be crucial in determining whether one of the nation's major airlines goes out of business altogether.

Two bankruptcy court judges - one in Philadelphia, the other in Chicago - could decide whether to abrogate key union contracts. Such a move has not been made in aviation since 1984. If it happens, it could result in wildcat strikes at US Airways and United sending both financially struggling carriers into liquidation.

Both airlines have said they need as much as $1 billion more in concessions to emerge from bankruptcy as lean competitors. While they've reached agreements with most employees, at this writing unions representing baggage handlers, mechanics, and some flight attendants are still negotiating.

The unions contend that their workers - who have already taken pay cuts as high as 30 percent - can't sacrifice more without having to mortgage their homes, if they haven't already sold them. These workers blame management for squandering givebacks they've already made.

Management, on the other hand, notes that labor is the airlines' biggest cost, and unlike the price of jet fuel, it's one they have some control over.

Both sides say publicly that it's in the best interest of the airlines, employees, and customers that they come to a negotiated settlement. But it remains to be seen whether that's possible.

"The airlines have to make an offer that workers are willing to accept, and that offer has to be low enough so they can still stay in business," says Douglas Baird, a professor at the University of Chicago's law school. "It's unclear whether doing both things simultaneously is going to be possible for either United or US Airways."

The union representing US Airways baggage handlers in Philadelphia claims their wages have already been cut so much - to as low as $7 an hour - that they're severely short-staffed. This week, the union publicly blamed US Airways management for the infamous Christmas baggage meltdown. They argued that the staffing problem - they're short 80 baggage handlers - has plagued the airport for more than a year, and that no more baggage handlers than called in sick than last Christmas.

"It's a longstanding problem that we've tried to address collectively without success. But it's one more of those issues that is in both of our interests to resolve," says Frank Larkin, a spokesman for the International Association of Machinists and Aerospace Workers, which represents the baggage handlers.

The long-term baggage problems were so well known in Philadelphia that some local US Airways customers simply FedExed their baggage. Kevin Mitchell, who is chairman of the Business Travel Coalition, is one. It cost him $250 extra, but his luggage was waiting for him and his wife at the hotel in Florida. And when their plane landed in Philadelphia on the return flight home, they simply walked by the mountains of lost and unclaimed bags, knowing theirs would be safely delivered a day or two later.

That may have been a sensible way around the labor problems, if not how to run an airline. And Mr. Mitchell is concerned that the tension with labor is "boiling up" to such a point that airlines may have indeed reached a wall in terms of making further progress in pay cuts.

"You've got a small but growing group of pilots who believe that the only answer right now is a systemwide stoppage by all pilots at all airlines," he says. "And you've got the flight attendants at United and US Airways threatening to strike."

Some union members believe a systemwide work stoppage would cause such a political outcry that Congress would have to step in, which in turn could help save some of the gains made by the unions over the years. But union leaders are far more cautious, and that has infuriated some of their members, like pilot James Hayhurst, who has taken a 50 percent pay cut and lost his pension in the past three years. In a letter to Capt. Duane Woerth, president of the Air Line Pilots Association, Mr. Hayhurst argues that an industrywide work stoppage is "our only hope to send a message to [President] Bush, Wall Street and the American people, and the only effective way to halt the destruction of our profession."

Union leaders acknowledge the high level of frustration among their workers, but many also continue to believe that, at least for now, working with management to save the struggling airlines is the best route.

"The ultimate objective is to reach an accord that's fair to all stakeholders," says David Kameras, a spokesman for the Association of Flight Attendants. "But management has to look at other cost-saving alternatives rather than taking it out of the hides of its employees as a first and last resort."

Mr. Kameras is optimistic that an agreement is possible. And so is management at US Airways. Despite its precarious financial situation, spokeswoman Amy Kudwa stresses how much progress the nation's sixth largest airline has made in its attempt to transform itself into a low-cost carrier: It's renegotiated debt, restructured some of its fares, and cut new financing deals.

"We're continuing to urge customers to book on US Airways," says Ms. Kudwa. "We know there are challenges yet to overcome, but we're confident that we'll emerge as a competitive low-cost carrier."

But sources inside US Airways also say that if negotiations fail, the company will ask the court to prohibit any strikes or other job actions. United Airlines would ask the bankruptcy court to do the same, especially if it abrogates current labor agreements and imposes wage cuts.

Airline analysts say the end result of this most recent shakeout could be the eventual liquidation of one or both of the airlines. But customers at their primary hubs shouldn't worry about being permanently grounded.

"Yes there will be some disruption, but every route that makes sense will be absorbed by another carrier, whether it's Southwest or JetBlue or some brand-new airline that we've never heard of," says Helane Becker, airline analyst with the Benchmark Company in New York. She also says that a liquidation will help reduce the overcapacity of airline seats, which in the end would be good for customers as well as the surviving carriers.

"In a market like this, they're just chasing good money after bad, which is ridiculous," she says. "It cannot continue."