By Albert B. Crenshaw and Keith L. Alexander
Washington Post Staff Writers
Saturday, January 8, 2005; Page E01

It was one step forward and another back yesterday for United Airlines in its efforts to win the labor-cost savings the struggling carrier says it needs to emerge from bankruptcy protection.

A judge tossed out a deal that United had reached with its pilots union, sending those talks back to the bargaining table. But the carrier reached a tentative agreement with its mechanics union. It was also near a deal with flight attendants, according to representatives of both the airline and the union.

United parent UAL Corp. -- which has been in Chapter 11 bankruptcy protection since December 2002 -- is seeking $725 million in savings on top of some $2.5 billion it has already obtained from its employees. This week, the carrier got court permission to cut the pay of baggage handlers and other workers by 11.5 percent.

The deal with the pilots would have saved the company $180 million a year. United spokeswoman Jean Medina said the airline is disappointed that the court rejected the deal. "We believe the agreement we forged with the union was fair and equitable and in the best interest" of the airline and its creditors, she said.

Details of the tentative agreement with the mechanics union were not immediately available. It must be voted on by the group's members and does not address the workers' pension plans. Separate negotiations on the mechanics' pensions are scheduled during the next 90 days, Medina said.

"We're pleased with the agreement that is an important step in achieving the savings we need," Medina said.

The pilots' agreement had called for them to receive a $550 million note, convertible to stock after UAL leaves bankruptcy protection, and for an improved 401(k)-type retirement plan. In exchange, the pilots accepted pay cuts and eventual termination of their traditional pension plan. The deal had triggered extensive opposition. Other unions argued that it restricted their ability to bargain with the carrier.

The government's pension insurer, the Pension Benefit Guaranty Corp., not only opposed the pilots' agreement in bankruptcy court, but also, last month, began proceedings in U.S. District Court in Chicago to terminate the pension plan immediately on the grounds that waiting until May, as the deal envisioned, would expose the agency to an additional $140 million in losses from the underfunded pension.

Yesterday, U.S. Bankruptcy Judge Eugene R. Wedoff said the pilots' agreement was unacceptable because it would place too many limits on the other unions and on the court. He said he made his ruling with "extreme reluctance" because of the progress it represented toward resolution of United's labor problems.

He said he hoped this progress could "be built upon," despite his ruling.

While the pilots union plans to meet with the company over the next few days "to explore the consequences of the judge's decision, there can be no assurance that the parties will reach another settlement," the Air Line Pilots Association said in a statement posted on its Web site. Further, it said, any new agreement would have to be reviewed by the union's executive council and might require another vote by members.

United has already reached agreements with its smaller labor groups, including its meteorologists and flight controllers.

Sara Nelson Dela Cruz, a spokeswoman for the airline's flight attendants' union, said the group was focusing on reaching an agreement with the airline. She applauded the court's decision on the pilots' deal, saying the agreement was unfair to the other groups. The pilots' deal contained a clause that would make it void if United were not able to terminate the pension plans of all of its workers.

"The judge's decision indicates that United's management was wrong in pitting one employee group against another," Dela Cruz said.

Wedoff's ruling does not affect the PBGC's federal lawsuit in Chicago, which it is continuing to press, a PBGC spokesman said. United has stopped contributing to the plan, which is underfunded by $2.9 billion, and few involved in the case think the plan can survive.

However, Wedoff's ruling removes a sweetener that helped the pilots accept the now-rejected deal. The company had promised to oppose any effort -- meaning a move by the PBGC -- to terminate the plan before May. Most of the pilots face severe cuts in the pensions they would receive from the PBGC, compared with those promised under the company plan, but a delay in termination would have allowed several increases in benefits guaranteed by the PBGC, boosting the pilots' pensions a bit.

However, the PBGC argues that those extra benefits have a cost to the agency of $140 million and thus represent an unreasonable additional expense. Federal law gives the agency the authority to initiate termination to avoid such costs.