UAL’s mechanics voted against the latest concessionary contract. The contract had been quasi-negotiated with the militant AMFA. An independent union that the mechanics voted in after UAL entered bankruptcy, replacing the IAM on a platform promising never to agree to concessions. Only the threat that UAL could use section 1113 of the bankruptcy code to void their contract forced the AMFA to grudgingly pass the concessionary contract on to the members for a vote.

Now that the members voted down the new contract, it appears that UAL intends to make good on the threat to ask the court to void the existing contract. Section 1113 requires the company to demonstrate that it needs the cost savings, which should be easy given UAL’s recent losses. AMFA intends to argue to the court that they have ideas that will generate the savings without requiring any wage or benefit reductions for its members. Similar arguments in section 1113 proceedings have never been successful. Thus, it appears that UAL may actually be able to void the contract.

What happens after that? At the same time they voted down the new contract, the AMFA mechanics voted to authorize a strike if UAL voids the contract and unilaterally imposes wage and benefit reductions. Were that to happen, UAL would probably seek an injunction or some other Federal intervention on the grounds that the RLA prevents strikes unless a long drawn out process involving mediation occurs first.

It would seem a stretch, bordering on involuntary servitude, for the courts to enjoin the mechanics from striking after their contract had been voided. Although there are various combinations and permutations, which could result in such a strike being averted judicially or otherwise, the possibility that a strike could occur is real.

The prospect of a mechanics strike at UAL invokes memories of EAL in which striking mechanics held up signs that read “We Won” when EAL announced they were shutting down permanently. Most observers consider that event the epitome of union idiocy, on par with the PATCO strike which resulted in most of the striking air traffic controllers never working in that profession again. However, a revisionist view among airline union militants considers the EAL strike a valiant sacrifice in which EAL union members gave up their jobs so that the rest of the industry would maintain high wages.

Analysts have previously not given much consideration to the possibility of UAL being shut down by a labor dispute. UAL CEO Glen Tilton's appointment was subject to union veto as a consequence of the majority of UAL shares being held by an employee ESOP. Tilton is widely regarded as a union appeaser. This view was reinforced when the PBGC, in a rare move, filed suit to block a recent UAL contract with the pilot’s union that the PBGC said was to generous.

The IAM, which represented the mechanics when Tilton was appointed, still has a member on the UAL Board and still represents non-mechanic UAL ground employees. There is no love lost between the IAM and the AMFA. If the AMFA were to strike it is unlikely that any other unions at UAL would hesitate to cross the picket lines. All of the other unions have accepted or are expected to approve the latest round of concessions the mechanics voted down.

The UAL pilots have the most at stake. Their “asset” which consists of a contract that requires UAL to pay them double what they could hope to obtain elsewhere (down from the previous triple) has a discounted present value far in excess of the total market value of any legacy airline’s equity. The pilots’ asset disappears if UAL shuts down.

One possibility is that UAL attempts to operate through a mechanics strike. The most contentious issue facing the mechanics at the legacy airlines involves outsourcing. The concessionary contract voted down by the mechanics would have allowed UAL to accelerate the pace of outsourcing. Ultimately UAL would probably wish to emulate the profitable airlines Southwest (LUV) and Jet Blue (JBLU) which have a small number of relatively highly paid personnel to perform those functions that are required at the locations flight originate from and outsource all other mechanic functions. In the case of JBLU some of the maintenance is done in El Salvador.

If the mechanics contract is voided, UAL could outsource all of its' heavy maintenance. The question is how much of the maintenance required for each flight could be outsourced. It might be possible that a vendor such as TIMCO could send in personnel to work on UAL’s premises for such work.

Between outsourcing, management employees and some mechanics that chose to cross the picket lines, UAL could probably get some flights into the air. However, it would probably be only fraction of present capacity. The competing legacy carriers would benefit significantly. Particularly AMR, but DAL, CAL and NWAC as well, even USAir could pick up traffic form a capacity reduction at UAL. Conceivably, UAL could eventually resume normal operations in the JBLU mode with a small core of non-union mechanics and the rest of the function outsourced. Were that to occur, it is unlikely that the AMFA action will ever be considered to be a noble sacrifice that held wages up for the rest of the industry, as some now view EAL’s demise.