Commentary: United Airlines: A Peace Mission the White House Should Skip

By Aaron Bernstein and Michael Arndt

Is the Bush Administration making bad labor relations at United Airlines Inc. even worse? The No. 2 carrier's tempestuous dealings with its unions have left many workers distrustful of management and in no mood for concessions. The conflict was due to come to a head on Dec. 21, when a federally mandated cooling-off period ends and United's 15,000 mechanics are free to strike.

A solution looked possible in late November, when United and the International Association of Machinists sketched out a plan to cope with the airline's woes. Management would show its good faith by giving mechanics the 25% pay hikes on the table before September 11. That was in line with hikes other United employees had already received. Both sides would then negotiate concessions.

But United balked in early December, company and union insiders say. The reason: It became clear that the White House saw even temporary raises as inappropriate, given the $781 million in federal aid United is now getting. A spokeswoman for the White House says it didn't realize that United and the IAM had come close to a deal. And according to United Senior Vice-President for Human Resources William P. Hobgood, "we do recognize the situation that the IAM is in, and we will continue in every way we can to find a solution."

Now both sides are waiting for the feds to solve their problem. The White House vowed to appoint a Presidential Emergency Board by Dec. 21, which would avert a strike for 60 days. Both sides expect a PEB to endorse concessions United wants, not only from mechanics but also from its other 65,000 employees, who with machinists own 55% of parent UAL Corp. (UAL )

The likely result: United will get cost cuts, but at the price of worse labor relations. They're already among the industry's poorest, as was clear when pilots snarled flights during a mid-2000 pay dispute. "We understand the need for concessions, but first we have to level the playing field with other employees," says Machinist leader Scotty Ford.

While it's not clear that the aborted plan would have worked, it held more promise than the imposed settlement now in the offing. Days before September 11, United had all but clinched a labor pact to lift the machinists' $25 hourly wage--among the lowest in the industry--closer to the $34 mechanics earn at No. 1 American Airlines Inc. (AMR )

The terrorist attacks threw that idea off course. United has since slashed about a fifth of its workforce and accepted emergency aid to help stem the red ink. In October, CEO James E. Goodwin was replaced by board member John W. Creighton Jr., largely at the insistence of fed-up union members.

In late November, United and the IAM decided to push through the pay hike agreed to before September 11. In return, the mechanics would give up some or all of their pay hike until the airline's fortunes improved. The deal was also meant to deflect the ire of Congress, which had just bailed United out. Even some analysts don't see a need for cuts, since United has slashed capacity to bring it in line with lower sales. "It's unrealistic to expect a long-term reduction in wages," says UBS Warburg analyst Samuel C. Buttrick.

Some analysts say that with passengers trickling back, the carrier will return to profitability by 2003 with no labor concessions at all. Of course, that's a long time to wait, so it's understandable that Creighton wants to curb costs. But if he lets a PEB impose a deal on his unhappy workers, the new CEO's first victory may be a Pyrrhic one.

Bernstein watches labor in Washington and Arndt covers United from Chicago.

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