United Continental Holdings Inc. (UAL) and the Association of Flight Attendants (AFA) have decided to expedite negotiations to enter into a new labor contract for workers under its subsidiary, United Airlines.
The company and AFA have involved the National Mediation Board, an agency that regulates airline labor relations to resolve the worker issues. The AFA represents more than 21,000 flight attendants at the subsidiaries –– United and Continental.
Both parties are keen on forming a joint contract for all flight attendants including those of Continental Airlines. They believe that a single contract would be highly beneficial as the merged airline focuses on curtailing costs, which could contribute to annual savings of approximately $1.2 billion by 2013.
However, workers at Continental are already covered under a separate contract. In October 2010, Continental Airlines’ flight attendants refused to join their peers from United Airlines. Following this discord, in January 2011, United Airlines’ union filed papers with the National Mediation Board for a single contract.
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), Zacks retains a Sell rating with Zacks #4 Rank.
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