United Airlines, a wholly owned subsidiary of United Continental Holdings Inc. (UAL), has finalized a labor contract with the International Brotherhood of Teamsters (IBT) for 5,500 airplane mechanics of United Airlines. In October 2010, United and Continental merged to form United Continental Holdings. However, labor unions of both companies still remain disintegrated causing union disputes.
International Brotherhood of Teamsters represents one of the largest labor unions in the U.S. and has approximately 1.4 million members. The union includes workers from 20 industrial sectors, including airlines, freight, parcel delivery, industrial trades, and public service. It represents technicians and mechanics of both United and Continental.
Going forward, United Continental expects to reach a single contract covering its mechanics. It believes that a single contract is highly beneficial as the merged airline focuses on curtailing costs, contributing to annual savings of approximately $1.2 billion by 2013.
Further, pilots are also discussing a joint contract. Flight attendants at United Airlines and Continental are represented by separate unions. Now, they have to choose between two unions through an election, before negotiations for a joint contract begin.
The Association of Flight Attendants represents approximately 15,000 United flight attendants, and the International Association of Machinists and Aerospace Workers represent 9,500 Continental flight attendants.
In October 2010, Continental Airlines flight attendants refused to join their peers from United Airlines. Following which, in January 2011, United Airlines’ union filed papers with the National Mediation Board for a single contract that triggered the election.
United and Continental are both highly unionized companies like its peers Southwest Airlines (LUV). As of December 31, 2010, United Continental had approximately 86,000 employees, of whom approximately 72% were represented by various U.S. labor organizations. Thus, union disputes, employee strikes or slowdowns, and other labor related disruptions, as well as the integration of United and Continental workforces in connection with the merger may delay expected merger synergies, increase labor costs or labor disputes, which in turn, would hurt the profitability of the company.
Currently, we maintain our long-term Neutral recommendation on United Continental Holdings. However, for the short term (1-3 months), the Zacks retains a Sell rating with Rank #4.
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