United: We Need $2 Bln More in Cost Cuts

CHICAGO – United Airlines (search), trying to revamp its business after nearly two years in bankruptcy, has told its unions it must terminate and replace their pensions as part of its drive to cut costs by an additional $2 billion a year.

Glenn Tilton (search), chief executive of United parent UAL Corp. (UAL), told employees late Thursday that one-third of the savings would come from labor, one-third from replacing pensions with cheaper plans, and one-third from non-labor cost cuts.

United has said it needs the savings to secure critical financing to help it exit bankruptcy. The carrier said last month it would move toward voiding its labor contracts in early November and that it needed the cost cuts in place by mid-January to maintain a comfortable cash balance.

As part of the cost-cutting plan, Tilton said he and seven top United executives will take 15 percent pay cuts as of Jan. 1, and salaried and management employees also will participate.

The No. 2 U.S. carrier gave its unions specific proposals on Thursday, he said, that included suggested changes to wages, benefits and work rules.

Union representatives were not immediately available to comment.

"We have faced difficult challenges and tough choices from the start of the bankruptcy, and we face them again today," Tilton said in a recorded message to employees Thursday night.

Union workers at the Elk Grove Village, Ill.-based airline agreed to $2.56 billion in concessions early in United's bankruptcy process. The airline has been operating under Chapter 11 protection (search) since December 2002.

United, like other carriers, has faced a number of setbacks in its effort to slash costs, including record-high fuel prices and a lack of pricing power due to heavy competition from discounters and weak customer demand. The airline said last month it expected fuel costs to be more than $1.2 billion higher than planned for this year.

Tilton said the company will have cut its costs by about $7 billion a year when it has completed this restructuring.

Union workers at many other airlines have agreed to steep givebacks to help their carriers survive a severe industry downturn. Pilots at US Airways Group (search), which filed its second bankruptcy in two years in September, had their pension plan canceled and replaced with a cheaper one during that carrier's previous bankruptcy.

Pilots at Delta Air Lines (DAL) and Northwest Airlines Corp. (NWAC) are in the process of voting on major concession packages. The results of the Northwest pilot vote are expected on Friday, while the results of the Delta pilot vote, a big part of that carrier's fight to avoid Chapter 11, are expected next week.