Planned industrial action could have forced the airline into bankruptcy, but the price of peace may be damagingly high

United Airlines has averted a strike by agreeing to a contract that makes its 16,000 union machinists the best paid in the industry. But the airline may once again have paid a damagingly high price for peace among its 16,000 employees - just as a 2000 contract made its pilots the best paid in the industry as the airline downturn began.

The final deal with the International Association of Machinists (IAM) includes wage hikes of 27% to 47% over five years for senior mechanics and aircraft cleaners, retroactive to July 2000. The union has recommended the deal, saying that it makes members "the best-compensated employees in the airline industry". Members will vote on the contract on 5 March.

Analysts believe that a strike would probably have forced the airline into bankruptcy. Standard & Poor's analyst Phil Baggaley says: "The agreement avoids the most damaging outcome near-term - a strike - but leaves United with a long and difficult task ahead to reduce its labour costs."

It must now agree a contract with another worker group represented by a related IAM chapter, after which United management will have to persuade all the airline's unions to accept cost cutting measures.

The IAM contract will cost United more than $1.6 billion over the next three years. United lost $2.1 billion last year and is now burning $10 million a day. Before the settlement, speculation centred on United seeking federal loan guarantees or even a bankruptcy reorganisation. United is still considering seeking federal loan guarantees, which so far have been granted only to America West.

Merrill Lynch analyst Michael Linenberg estimates United lost as much as $100 million to $150 million in "booked" revenue for the two to three weeks before the settlement due to market concerns that a strike was imminent.

Source: Flight International