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CHICAGO, Nov. 26, 2002 - UAL Corporation (NYSE: UAL) today announced details of its tentative and ratified labor agreements with the company's union employees. The company also announced the details of its financial recovery arrangement with non-union employees. Taken together, the recovery program is estimated to provide United with approximately $5.8 billion in labor cost savings before capacity reductions. Aftertaking into account recently announced capacity reductions, the company's labor cost savings from the financial recovery program are projected to be approximately $5.2 billion, which is in line with the framework agreed upon by the company and its unions.
Additionally, United estimates that the capacity reductions - made possible by its agreement with the Air Line Pilots Association - will result in an additional $1.2 billion in profit improvements over the recovery program period. When added to the previously announced $1.4 billion in annual non-labor cost savings and revenue enhancements included in the program ($7.7 billion over the recovery program period), United's total post-capacity reduction labor savings and profit improvements will equal $14.1 billion over the next five-and-one-half years.
The following chart provides the average annual profitability improvement and total profitability improvements over the program period from United's labor and capacity reductions and its previously announced non-labor cost reductions and revenue enhancements:
$ Billions
| Labor and Capacity Reduction | ||
| Non-Labor Cost Reduction and Revenue Enhancement | ||
| Total |
*Totals for the period may be less than if multiplied by 5.5 years due to rounding
Union Employee Agreements
As part of the new agreements, United's union employees would receive stock options and participate in a new profit sharing plan. The agreements also include immediate wage-rate reductions as well as a number of other detailed provisions for each group. Below are further details of each agreement, broken down by employee group.
Pilots: The company's agreement with employees represented by the Air Line Pilots Association (ALPA) was ratified by the union's members on Monday, Nov. 18. Details of the agreement include:
On Monday, Nov. 18, United announced that the company had adopted a recommendation from its System Roundtable regarding salaried and management (SAM) employees' participation in the airline's financial recovery program. Under the recommendation, SAM employees will contribute approximately $1.3 billion in wage reductions and productivity improvements to United's recovery over the five-and-one-half years of the program. Details of the arrangement include:
All employees participating in the financial recovery program will receive stock option grants and participate in a profit sharing program from 2004 through 2008. Additionally, all proposed contract changes with the unions, either tentative or ratified, include a letter of agreement with UAL regarding the company's ability to initiate or support a Section 1113/1114 proceeding in Chapter 11. The agreement states that, in the event of a Chapter 11 filing after the company has received loans guaranteed in substantial part by the ATSB, it will not initiate or support a Section 1113/1114 proceeding before Nov. 30, 2003. Exceptions to this agreement include the event of a substantial and adverse deviation of United's operating cash flow from the business plan submitted to the ATSB or an unforeseen and substantial disruption of air travel.
The agreements, both tentative and those that have been ratified by their union membership, and the wage-reduction arrangements for non-union employees, become effective upon the closing of a loan facility for the company guaranteed in part by the Air Transportation Stabilization Board (ATSB) and satisfactory participation by all employee groups in the recovery plan. If these conditions are not satisfied by Dec. 31, 2002, the agreements will not become effective.
More details on United's agreements with its unions and wage-reduction arrangements for its non-union employees can be found in the Form 8-K the company is filing with the Securities and Exchange Commission today.
Labor Cost Savings
United and the union coalition began negotiations on a framework for labor cost reductions in August. At that time, the airline had not made any definitive plans for capacity reductions in 2003. When the company and the union coalition reached an agreement in October on a target number for labor cost savings of $5.8 billion over five-and-one-half years, it was based on United's current capacity. As the company continued to focus on its recovery program and update its business plan with the ATSB at the end of October, planned capacity for 2003 was decreased by approximately 6 percent over United's current levels and projected capacity increases for 2004 through 2008 were reduced. As a result, the company's estimated labor savings from wage reductions and other detailed provisions included in its tentative and ratified agreements with all of its unions and its wage-reduction agreements with non-union employees total $5.2 billion over the recovery program period.
The following chart summarizes the breakdown of United's labor cost savings before and after planned capacity reductions:
$ Billions
| Before Capacity Reductions | After Capacity Reductions | |
| ALPA | ||
| IAM | ||
| AFA | ||
| SAM/PAFCA/TWU | ||
| Total |
United operates nearly 1,800 flights a day on a route network that spans the globe. News releases and other information about United may be found at the company's website at www.united.com
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Some of the information in this press release is forward looking and involves risks and uncertainties that could result in actual results differing materially from expected results. Forward-looking statements represent the company's expectations and beliefs concerning future events, based on information available to the company at the date of this press release. Some factors that could significantly impact estimated cost savings include, without limitation, the economy and the demand for air travel; the higher costs associated with new airline security directives and any other increased regulation of air carriers; the significantly higher costs of aircraft insurance coverage for future claims caused by acts of war, terrorism, sabotage, hijacking and other similar perils, and the extent to which such insurance will continue to be available; the ability to raise and the cost of financing in light of the September 11 events and the possibility of any further credit downgrades to the company; the cost of crude oil and jet fuel; industry capacity decisions; the success of the company's financial recovery plan and further profit improvement initiatives; the outcome of the ATSB loan guarantee process; actions of the U.S., foreign and local governments; the economic environment of the airline industry and the economic environment in general.
Investors should not place undue reliance on the forward-looking information contained herein, which speaks only as of the date of this press release. The company disclaims any intent or obligation to update or alter any of the forward-looking statements, whether in response to new information, unforeseen events, changed circumstances or otherwise.
