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UAL Corp.’s United Airlines won a bankruptcy court judge’s permission on Friday to cut the wages of 37,000 ground workers and machinists represented by the International Association of Machinists. United thus becomes the first air carrier to use a provision of the U.S. Bankruptcy Code written specifically for troubled airlines to forcibly terminate a labor contract. The IAM is the only union that refused to go along with a series of temporary wage cuts UAL proposed for all unionized employees. Judge Eugene Wedoff of the U.S. Bankruptcy Court for the Northern District of Illinois in Chicago signed off on a temporary 14 percent cut in the IAM workers’ wages which was to begin Friday. Last week, two of UAL’s biggest unions, the Air Line Pilots Association and the Association of Flight Attendants, agreed to wage reductions of 29 percent and 9 percent, respectively. Combined, the pay cuts will save $70 million monthly, UAL said Friday. Soon after UAL filed for Chapter 11 Dec. 9, the parent of the world’s second-largest airline said it needed a certain amount of wage reductions by Feb. 15 to meet the conditions of its debtor-in-possession loan. UAL can tap $800 million of its $1.5 billion DIP, but access to the rest had depended on the wage cuts, the company said. UAL’s use of � 1113 of the U.S. Bankruptcy Code to force IAM members to take a temporary pay cut is a historic step in major airline bankruptcies. “I believe this is the first time that 1113 has been used in an airline bankruptcy of any consequence,” said Charles Schulman of Chicago’s Sachnoff & Weaver Ltd. who is local counsel for IAM. The last major air carrier to use the bankruptcy court to cancel collective bargaining agreements was Continental Airlines, which filed for Chapter 11 in 1983. Continental’s workers responded with an 18-month strike, but the carrier survived by exercising its right to reject any contracts it considered economically harmful. Continental could not avail itself of � 1113, which was added to the bankruptcy code in 1984. Section 1113 set up stricter standards for bankruptcy courts to allow companies to reject collective bargaining agreements. One of these requirements is proving that terminating union contracts is necessary for the debtor’s survival. Throughout UAL’s standoff with IAM on the temporary wage cut, the two sides continued talks on permanent wage cuts and work rule changes, said Joe Hopkins, UAL spokesman. Those discussions will continue in Chicago this week, said IAM spokesman Joe Tiberi. Similar negotiations are going on with the UAL’s other unions, Hopkins added. After rejecting UAL’s request for a 13 percent temporary wage cut, IAM never presented it for a vote by its UAL members, Hopkins said. UAL has told the bankruptcy court in Chicago that if it fails to work out new labor contracts with its unions by March 15, it will look to impose permanent wage cuts and work rule changes through an 1113 motion. UAL seeks $2.4 billion annual cuts in labor costs. �Copyright 2003, The Deal, LLC. All rights reserved.

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