Bankruptcy Court Imposes Temporary 13% Reduction www.washingtonpost.com

_____  Crisis in the Skies _____ Earning per share for 3d quarter and estimates for the 4th quarter.

Airline 3Q 4Q Estimate United -$8.82 -$12.06 US Airways -$3.30 -$3.20 Delta -$1.75 -$2.44 American -$3.05 -$3.70 Continental -$0.58 -$1.99 Northwest -$0.55 -$1.86 Southwest $0.06 $0.03

By Keith L. Alexander and Kirstin Downey Washington Post Staff Writers Saturday, January 11, 2003; Page E01

United Airlines won a major victory yesterday when a U.S. bankruptcy judge ordered its resistant machinists union to accept a temporary 13 percent pay cut, eliminating a key obstacle in the carrier's effort to secure $700 million in interim financing it needs to continue operating.

The machinists were alone among United's unions in rejecting wage reductions proposed by the carrier. The airline had agreements with its pilots, flight attendants, dispatchers and meteorologists.

The ruling by U.S. Bankruptcy Judge Eugene R. Wedoff ensures that United will be able to temporarily cut its labor costs by $70 million a month by Feb. 15, one condition set by banks for release of the interim financing. But United still must reduce other costs before it gets the money. United spokesman Joseph P. Hopkins said the ruling enables the airline to pursue cuts with its aircraft lessors and suppliers.

United, which is losing about $20 million a day, last month became the largest airline ever to file for bankruptcy reorganization.

Airline industry executives told a Senate committee Thursday that they don't foresee a return to profitability until 2004. The industry was expected to lose more than $9 billion last year, after losing $7.7 billion in 2001.

American Airlines announced yesterday that it would cut 800 flight-attendant jobs and, on Thursday, Delta Air Lines said it would eliminate 4,000 jobs.

Airline executives and union leaders are closely watching labor relations at United, the world's second-largest airline, as they search for their own approaches to remaining competitive.

In his ruling yesterday, Wedoff agreed with United and its parent, UAL Corp., that changes to the International Association of Machinists' collective bargaining agreements were "essential, at the present time, to continue United Air Lines Inc.'s business and to avoid irreparable damage to the estate."

The union did not respond to Wedoff's order. It posted a memo on its Web site informing its 37,000 members of the pay cuts.

Some union members expressed strong reactions in interviews later in the day.

"I'm still banging my head on the desk," said Joseph Tiberi, a spokesman for the union.

The case lays bare the "politics of the tarmac," said Christopher Cameron, associate dean and professor of law at Southwestern University School of Law in Los Angeles, who has studied how judges handle bankruptcy cases.

Cameron, a former labor lawyer, said the mechanics often feel unappreciated and underpaid for the critical role they play keeping planes aloft. "Machinists see pilots as overpaid bus drivers and think they can give more because they have more to give," he said. "The mechanics' view of flight attendants is that they are overpaid waitresses. These are the politics of employee relations at the airlines, and you only see them come to the surface when airlines are in severe distress."

United's pilots agreed to a 29 percent pay cut, its flight attendants approved a 9 percent pay cut, and its flight dispatchers and meteorologists accepted a 13 percent reduction. Their pay cuts went into effect Jan. 1.

Before United's Chapter 11 bankruptcy filing, the airline's pilots earned an average $190,000 a year, mechanics $76,000, passenger service workers $42,000 and flight attendants $41,000, according to figures compiled by the Association of Flight Attendants.

Wedoff said that to be fair, the machinists' pay would be cut by 14 percent from yesterday through May 1. That would be equivalent to the 13 percent reduction retroactive to Jan. 1 that United was originally seeking.

The temporary wage reductions will remain in effect until the airline reaches new wage agreements with its unions on or before May 1.

"Now that we have received court approval to take the immediate steps necessary to stabilize our cost structure, we can devote our attention to working with our unions on the longer-term imperatives currently facing the company," United chairman and chief Executive Glenn F. Tilton said.

Hopkins said that even with yesterday's ruling it was too early to say whether United would reapply for a federal loan guarantee. Last month, the federal government denied the airline's application for $1.8 billion in guarantees.

United plans to emerge from bankruptcy by June 2004. It has already received $800 million in loans from its banks, including Bank One, J. P. Morgan Chase, Citigroup and CIT Group.

Also yesterday, United began eliminating and restructuring some of its unprofitable routes. The airline said it would stop its daily flights to New Zealand in March. United's alliance partner, Air New Zealand, will fly customers who have flights booked after March 27. United also said its nonstop service between Miami and Rio de Janeiro will be replaced with a flight that stops over in Sao Paulo, Brazil, beginning March 12. United's flights from Washington's Dulles International Airport to Sao Paulo will continue to fly on to Rio de Janeiro.

news.ft.com By Stephen Fidler in London Published: January 11 2003 4:00 | Last Updated: January 11 2003 4:00

A withdrawal by North Korea from the nuclear non-proliferation treaty (NPT) would deal a blow to an accord regarded by many as the cornerstone of efforts to curb the spread of nuclear weapons.

While the Bush administration has expressed its distaste for a number of multilateral treaties, the NPT, which came into force in 1970, is one that it favours.

This is in part because the treaty carves out a special category for the five countries - Britain, China, France, Russia and the US - that had nuclear weapons before January 1 1967.

"North Korean withdrawal from the NPT could be the beginning of the unravelling of the treaty," said Joseph Cirincione, director of the non-proliferation project at the Carnegie Endowment in Washington. "This is clearly the most serious proliferation threat that we face, much more serious than Iraq."

Mr Cirincione said the North Korean move posed two risks. It suggested a big change in the strategic equation in north-east Asia, raising questions about whether Japan and South Korea would obtain a nuclear deterrent.

Second, the restarting of plutonium production at the Yongbyon reactor could turn North Korea into a plutonium supermarket for others seeking the material.

The NPT is seen as the treaty that set the norm for non-proliferation. One of its strengths is its near universality: Cuba became the 188th party to the treaty on its accession last November.

The treaty has been credited with curbing the number of nuclear states, belying a common forecast in the 1960s that by the turn of the century there could be between 40 and 100 nuclear states. In fact, there are only eight.

The treaty was not the only factor: the development of effective alliances also meant technologically capable countries such as Germany and Japan were able to forgo a deterrent, under the US nuclear umbrella.

Yet arms control specialists insist the treaty was important in establishing a non-proliferation norm. Among countries with nuclear ambitions, South Africa - which admitted to building six nuclear bombs - signed the treaty in 1991, and Brazil and Argentina joined in the 1990s. Three of the four nuclear successor states to the Soviet Union - Belarus, Kazakhstan and Ukraine - also gave up their nuclear arms.

The prohibition in the NPT against the spreading of nuclear materials and technologies also meant that many countries that sought a nuclear deterrent were unable to overcome the main obstacle to nuclear bomb production: the manufacture of the uranium or plutonium needed for its core.

One important weakness of the NPT though has been the existence of three nuclear states that have never acceded to it: Israel, which was joined overtly by India and Pakistan after their nuclear tests in 1998.

If it follows through on its threat to withdraw, something it threatened in 1993, North Korea would bea fourth. Any member can withdraw with 90 days' notice if the "supreme interests of its country" are jeopardised.

North Korea signed the treaty in 1985 under Soviet pressure. A special arrangement for North Korea under the NPT was negotiated in 1994 which deferred for a decade the question of whether North Korea was complying with the treaty.

Rightwing commentators in Washington have already argued that the US should respond to North Korea by encouraging Japan to develop its own nuclear deterrent. This, one argument goes, would encourage China to exert its full influence to stop North Korea developing nuclear weapons.

www.gopbi.com By Larry Lipman, Palm Beach Post Washington Bureau Saturday, January 11, 2003

WASHINGTON -- Hidden subsidies are artificially depressing the world price of sugar at a time when many nations want to eliminate sugar import restrictions, according to a report released Friday.

The report commissioned by the American Sugar Alliance -- which represents most of the nation's sugar producers -- examined the policies of 13 countries (including the European Union) that account for 75 percent of world sugar exports to determine the level of support given to their domestic sugar industries.

The report found wide-ranging direct and indirect government supports including ethanol production programs, debt relief, industry subsidies and market interventions. The study was compiled by LMC International, an Oxford, England-based economic consulting firm specializing in the sweetener industry.

For example, in Brazil, the world's largest sugar exporter at about 13 million tons annually, most of the country's sugar production is used to make ethanol and is subsidized by a government program that reduces the domestic cost of sugar by about $1 billion a year, the report said. In addition, the Brazilian government provides about $200 million in direct subsidies to the sugar industry.

In Thailand, the government has pressured banks to postpone or reschedule debt of about $1.1 billion, while providing about $310 million in credit and subsidies, LMC said.

Alliance officials gave the report to Allen Johnson, chief agricultural negotiator in the office of the U.S. Trade Representative, and to key members of Congress who suggested the study.

The U.S. sugar industry is concerned about two major forces on world trade: an increase in negotiations such as the Free Trade Area of the Americas and recent talks with Central America that may lower U.S. import barriers on sugar; and efforts by a group of 14 sugar-exporting nations to lower trade barriers in the United States, Europe and Japan in the current round of world trade talks.

The U.S. needs to address sugar policy on a worldwide basis rather than in bilateral negotiations, said Don Phillips, the alliance's trade consultant.

"If we give a piece of it to each country, we won't have any leverage on a global basis," said Dalton Yancey, executive vice president of the Florida Sugar Cane League Inc., a Washington lobbying group.

larryl@coxnews.com

www.nytimes.com

Presidents Vicente Fox and George W. Bush both took office two years ago promising to forge a new partnership bridging the Rio Grande, one marked by a once-unimaginable level of cooperation on a number of fronts. It hasn't happened, and as a result Mexico's enlightened foreign minister, Jorge Castañeda, has resigned.

The centerpiece of the new relationship was to have been a new accord on immigration. That encountered early resistance on Capitol Hill, and the terrorist attacks of Sept. 11, 2001, rearranged the White House's priorities. Washington has since failed to recognize that an immigration deal that serves American economic needs and diminishes the population living illegally in this country can be compatible with heightened security.

The White House's neglect has proved to be politically damaging to Mr. Fox's administration. The Mexican government had to overcome widespread public skepticism, and concerns about surrendering national sovereignty, to sell the idea of a new understanding with the neighboring superpower. Mr. Castañeda was the most outspoken advocate of closer ties with the United States. His frustration over the stalemate in the relationship contributed to his decision to resign.

Mr. Castañeda worked tirelessly to promote an immigration deal and closer cooperation in fighting drug trafficking and on other law enforcement matters. He ended Mexico's tradition of warm ties with Cuba in order to back American denunciations of Fidel Castro's human rights record.

Beyond its failure to deliver on immigration, the Bush administration largely missed an opportunity to collaborate with Mexico and Latin democracies in dealing with a number of thorny hemispheric matters, most notably the crisis in Venezuela.

Angry calls by Mexican farmers in recent weeks for their government to renegotiate the North American Free Trade Agreement in response to the ill-advised agricultural subsidies passed by Congress last summer would serve no one's interest, as Mr. Castañeda has pointed out. But they are indicative of a broader disenchantment with the United States that cuts across Mexican society. The Bush administration should take note of Mr. Castañeda's frustration, and seek to improve ties with our neighbor to the south.

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Stocks closed higher for a second straight week yesterday as investors shrugged off disappointing jobless numbers and growing political tensions in North Korea and Iraq.

The two-week rise follows a dismal December, the worst since 1931. Trading this week was volatile and heavy, as investors attempted to digest the potential impact of Bush's tax cut proposals, the possibility of a war in Iraq and North Korea, the threat of rising oil prices because of political unrest in Venezuela, and the latest economic news.

The Dow Jones industrial average closed at 8784.89, up 8.71 points, or 0.1 percent yesterday, and 2.1 percent higher for the week. The Nasdaq composite index closed at 1447.72, up 9.26 points, a gain of 0.6 percent yesterday and 4.4 percent for the week. The Standard & Poor's 500-stock index ended the day where it began, at 927.57, and rose 2.1 percent for the week.

Stocks dropped sharply at the opening after the Labor Department announced that employers eliminated more than 100,000 jobs last month, reducing payrolls to their lowest level since the recession began in early 2001. But then the markets began to recover, led by technology stocks, which rose after several analysts indicated that spending on technology may improve.

"I think the economic data this morning was disappointing but not alarming," said Robert Barbera, chief economist at ITG/Hoenig. He said the decline in payrolls could largely be attributed to the plunge in retail employment, and he noted that investors already knew Christmas sales were disappointing.

Other economists said the low level of hiring, in part, reflected productivity growth, which enabled companies to produce more goods and services without hiring more people.

The Bush administration's statement that it was ready to enter into direct talks with North Korea and to begin mediation to end the political turmoil in Venezuela helped calm jittery investors somewhat, according to analysts. Investors have also factored in the potential of geopolitical problems in many of their investments, analysts said.

"This same kind of news a few months back would have been very damaging. But today everyone is hunkered down and focused on risk," said James Paulsen, chief investment officer at Wells Capital Management. "The market's getting into a mood where good news puts it up a couple hundred points and bad news just makes it stay flat. That's a much better position sentiment-wise."

Cisco Systems rose 27 cents, to $15.22, after analysts said companies may start upgrading their networking systems. Nortel Networks, a phone equipment company, rose 20 cents, to $2.35. Intel rose 36 cents, to $17.42.

"Investors are optimistic about the first quarter," said Arthur Hogan, chief market analyst at Jefferies & Co. "They're pricing in future economic activity and corporate earnings and discounting news that's coming out today."

One sector down yesterday was health care, after UBS Warburg downgraded the industry. Community Health Systems, LifePoint Hospitals and Triad Hospitals all slid more than 7 percent Other Indicators

• The New York Stock Exchange composite index fell 0.54, to 5209.80; the American Stock Exchange index rose 0.81, to 833.44; and the Russell index of 2,000 small stocks rose 0.50, to 396.44.

• There were about as many advancing issues as there were declining stocks on the NYSE, where trading volume fell to 1.5 billion shares, from 1.57 billion on Thursday. On the Nasdaq, advancers outnumbered decliners by 6 to 5, and volume totaled 1.62 billion shares, down from 1.64 billion.

• The price of the Treasury's benchmark 10-year note rose $1.88 per $1,000 invested, and its yield fell to 4.14 percent, from 4.17 percent late Thursday.

• The dollar fell against the Japanese yen and the euro. In late New York trading, a dollar bought 119.21 yen, down from 119.40 yen late Thursday, and a euro bought $1.0572, up from $1.0487.

• Light, sweet crude oil for February delivery settled at $31.68 a barrel, down 31 cents, on the New York Mercantile Exchange.

• Gold for current delivery rose on the Commodity Exchange division of the New York Mercantile Exchange to $354.50 a troy ounce from $353.30 on Thursday.