United Strikes Deal with IBT

After a long battle between United Continental Holdings (UAL - Analyst Report) and International Brotherhood of Teamsters (IBT), both parties have now struck a new labor deal. 

Recently, United Airlines, a wholly owned subsidiary of United Continental, reported that a new labor contract was approved by 5,500 airplane mechanics represented by IBT. The agreement deals with factors like compensation benefits and work rules, including an $11,500 bonus and recovery of items that were lost when United went through a bankruptcy in 2009.

Looking back, United Airlines and IBT agreed upon a tentative labor agreement for mechanics at United in March and was awaiting ratification by the members. In September, talks of expediting the ratification surfaced before the mediation with the National Mediation Board was scheduled for November.

We believe that the company’s effort to integrate its work force will bode well for its operational efficiency and serve its plan to reach a single contract covering employees of United Airlines and Continental Airlines. In November 2010, the company had already received approval on a collective bargaining agreement by Continental mechanics represented by IBT. The company 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.

In October 2010, United and Continental merged to form United Continental Holdings. However, labor unions of both companies remained disintegrated, causing union disputes.

United and Continental are both highly unionized companies unlike its peer Southwest Airlines (LUV - Analyst Report), which has so far been successful in integrating its labor force. 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 may delay expected merger synergies and increase labor costs or disputes, thereby hurting profitability of the company.

Currently, we maintain our long-term Neutral recommendation on United Continental supported by a Zacks #3 (Hold) Rank.

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