Source: Wall Street Journal
Author: Susan Carey

A majority of the 11,000 active pilots at United Continental Holdings Inc. UAL -0.22% ratified a labor agreement that will cover the combined group brought together by the merger of their respective carriers in 2010, the Air Line Pilots Association said Saturday.

The new four-year accord, which provides for hefty signing bonuses immediately followed by an 8.5% raise in January 2014 and three subsequent annual raises of 3%, was approved by 67% of the eligible voters, with nearly 98% participating in the vote, the union said.

By reaching a joint labor contract, the pilots now can move on to agreeing to a single seniority list, a process ALPA said will take "several months" to complete. That list will dictate which aircraft types the pilots fly, which routes and schedules they can bid for and when they can take vacation. If the groups can't agree on their own, ALPA has pledged to submit the matter to binding arbitration.

A joint contract and single seniority list will allow the airline to mix and match cockpit crews and aircraft, which will help it achieve the cost savings and revenue benefits envisioned in the merger, which created the world's largest airline by traffic. Chicago-based United Continental continues to bargain with its other unionized workers with the goal of agreeing to unified contracts with them, which will add to its operating efficiency.

"The era of bankruptcy and concessionary contracts is over," said a joint statement by Capt. Jay Heppner, chairman of the executive council of the United ALPA branch, and his Continental counterpart, Capt. Jay Pierce. "We now stand ready to embark on a fresh start for the pilots and the airline."

Fred Abbott, senior vice president of flight operations for United Continental, said in a statement that the contract "is an important step forward for our pilots and the company." He said the carrier looks forward to "the efficiencies and teamwork we will achieve as our pilots become one group…"

The new pilot accord, which largely mirrors a rich, industry-leading contract that the pilots at Delta Air Lines Inc. DAL -0.62% agreed to over the summer, will supplant concessionary agreements the United and Continental pilots have been working under since the past decade. United's 5,600 active pilots agreed to deep givebacks when their employer was in bankruptcy-court protection from 2002 to 2006. About 1,400 United pilots remain on furlough since that restructuring. Continental's 4,400 pilots also made concessions outside bankruptcy in the middle of the decade.

The deal was a long time in coming—a year after United Continental management initially expected. The negotiations were rocky and marked by pilot informational picketing at airports and in front of the White House to protest the protracted bargaining timeline. The aviators also approved a symbolic strike vote, conducted in the event that federal mediators determined the talks were at an impasse.

Terms in principle were agreed in August but it took several months for the parties to nail down the final language. Pilots began voting on the pact Dec. 1, and the balloting concluded Saturday.

Under the new deal, pay rates will jump between 12% and 38% immediately, depending on which aircraft a pilot flies. By early 2017, when the pact is open for renewal, the pilots will be earning between 32% and 63% more than they do today, with the largest gains coming on the United side, according to data ALPA distributed to its members prior to the vote. 

United Continental in October disclosed that it recorded a $454 million expense in the third quarter to cover the lump-sum cash payments that will be made when the contract is approved.

According to J.P. Morgan JPM +0.07% research, the hourly pay of a Boeing BA -0.40% 777 captain with 12 years of seniority will jump to $235 an hour once the signing bonus kicks in, up from $190 an hour currently for a United 777 captain and $193 for a Continental captain. The rate for a 12-year United Airbus A320 captain will jump to $189 an hour from $137, and the pay of a Continental Boeing 737 captain will increase to $181 an hour from $150.

For a pilot flying 84 hours a month—the maximum average foreseen in the new contract—the 777 captain would earn $237,000 a year, and the A320 captain $190,500.

United Continental will contribute 16% per year to the pilots' retirement plan and offer a profit-sharing plan.

The new accord will allow United Continental to wring more productivity out of the group by letting it schedule pilots to fly more hours per month. The company also was granted the flexibility to add up to 130 large regional jets to be flown by its commuter affiliates, with some restrictions. This was a hot button in the talks as pilots generally try to limit the number of regional airplanes a carrier can contract for, preferring to keep the flying for their own members rather than "outsourcing" jobs to third parties.

Pilots at AMR Corp.'s AAMRQ +3.15% American Airlines earlier this month, under the duress of their employer's bankruptcy restructuring, agreed to a concessionary six-year labor contract that will help American lower its labor costs. But in the third year of that pact, American pilots' pay will be readjusted to reflect the gains made by pilots at United Continental and Delta, the No. 2 airline by traffic. American is No. 3.

Pilots at US Airway Group Inc., which is pitching a plan to merge with AMR as a vehicle for bringing American out of Chapter 11, never were able to agree to a single seniority list after their carrier merged with America West Airlines in 2005. So the combined US Airways LCC -1.08% aviators haven't won a new, joint labor agreement and are working under deeply concessionary terms that date back to the industry's dark days after the 2001 terrorist attacks.

If the merger occurred, pilots at US Airways, the nation's fifth-largest carrier, would receive raises even if they were only brought up to American pilots' current pay.