Airline may garner $300M a year in savings from tentative labor pact

US Airways announced on Friday that it has reached a tentative agreement with its pilot's union that, if ratified, should result in some $300 million in savings for the airline, which is currently going through its second bankruptcy filing in as many years. Details of the agreement were not available.

The airline's 3,000-plus pilots still need to ratify the agreement, and the union hasn't made too many comments about the content of the deal, which it said is under consideration. The airline management, on the other hand, wasted no time to emphasize the importance of reaching a deal a key step in the progress of reorganization. The cost cuts are also critical for US Airways to be able to compete against its low-cost counterparts in the industry.

"Ratification by ALPA's members is essential to our transformation and would demonstrate their continuing commitment to making our airline stronger and more competitive," said US Airways CEO and President Bruce Lakefield.

The union is against a rock and a hard place -- the bankruptcy court has the power to dissolve any and all labor agreements and simply impose a new wage and benefit structure. This fact has given many airlines, not just US Airways, leverage in its negotiations with labor unions. American Airlines used the same strategy of emphasizing the consequences in order to convince both its pilots as well as its flight attendants that it was in their best interests to accept the deal they were being offered by management.

US Airways, however, continues to negotiate with both the Association of Flight Attendants as well as the Communications Workers of America, and next week the talks with the International Association of Machinists are scheduled to resume. Other smaller labor groups within the airline have already reached agreements with the management.

There still remain significant doubts as to whether or not US Airways can emerge from bankruptcy, even if agreements are reached with all the employees organized under labor union agreements. The company went into this second bankruptcy without a key item that they had in the first one -- debtor-in-possession financing. Because of the lack of this key cash flow tool, the company must use it own cash reserves while it works to reorganize. There are plenty of analysts who doubt that the airline will have the resources to accomplish this lofty goal. Only time will tell if US Airways can pull it off.

FMI: www.usairways.com