New York Times
Judge Allows United to Terminate Its 4 Union Pension Plans
May 10, 2005
By Micheline Maynard
United Airlines won its bid to terminate its four employee pension
plans this evening, clearing the way for the largest pension default
in corporate history.
The airline's unions denounced the decision by a federal bankruptcy
court and vowed they could go on strike against United over the
move.
After a lengthy hearing in a Chicago courtroom packed with company
employees and retirees, Judge Eugene Wedoff of the United States
Bankruptcy Court sided with United in its contention that it could
not emerge from bankruptcy protection with its pension plans in
place. United has been operating in Chapter 11 bankruptcy since
December 2002.
The ruling potentially will save United billions of dollars a year
in pension contributions. The airline plans to switch from conventional
retirement programs, called defined benefit plans, to defined
contribution programs like 401(k) plans.That shift has significant
implications for the airline industry, which has lost more than $30
billion since 2000. Airline industry analysts have predicted that
if United succeed in terminating its pension plan, other airlines
might also file for bankruptcy protection in efforts to bring their
pension costs down to United's levels.
In fact, Delta Air Lines disclosed today that it might have to seek
bankruptcy protection if it is not able to renegotiate terms of
more than $600 million in loans or if its cash reserves dwindle.
It also said it expected a significant loss for 2005. The disclosure,
made in a filing with the Securities and Exchange Commission, set
off a 10 percent decline in Delta stock.
Late last month, the Pension Benefits Guaranty Corporation, a federal
agency, agreed to assume control of United's four union pension
plans. The agency said the plans, covering pilots, flight attendants,
mechanics and other workers, were underfunded by $9.8 billion, an
even bigger deficit than the airline estimated at the end of 2004.
For United's retirees, the takeover will mean reductions in payments,
because the government's insurance has limits.
The government estimated last month that the pension agency would
cover about $6.6 billion of United's shortfall. The remainder, about
$3.2 billion, will be borne by United's retirees, in the form of
benefit reductions.
As part of its agreement with United, the pension agency will receive
corporate securities valued at $1 billion or more from the airline's
parent company, the UAL Corporation.
The four pension plans cover about 121,500 employees and retirees.
