THE NATIONUnited Airlines Cleared to Shed Pension PlansA bankruptcy judge allows the carrier to transfer $6.6 billion of liabilities to a U.S. agency. Some retirees' benefits may be affected.By James F. PeltzTimes Staff Writer May 11, 2005 A bankruptcy judge Tuesday approved United Airlines' historic plan to dump its underfunded pension plans on a federal agency, a move United said it needed to survive but one that could trigger a damaging strike against the airline. At a hearing in Chicago packed with scores of United employees and retirees, union officials and lawyers, U.S. Bankruptcy Judge Eugene Wedoff said United could shift all four of its major pension plans — and their combined $6.6 billion of liabilities — to the Pension Benefit Guaranty Corp. FOR THE RECORD: United Airlines —An article in Wednesday's Section A about United Airlines' pension plans said the air carrier had 4,000 active employees living in California. In fact, about 15,200 active United employees live in California. The ruling clears the way for the largest corporate pension default in the 31-year history of the nation's pension insurer, and it added to the massive financial problems that the PBGC itself is grappling to contain. The ruling fueled speculation that other major airlines — which also are suffering huge losses — might try to ditch their pension plans to avoid being at a competitive disadvantage to United, the second-largest U.S. carrier, behind American Airlines. Wedoff's decision was an immediate blow to United's 121,500 active and retired employees, many of whom are likely to see their retirement checks reduced because federal pension laws cap how much the PBGC pays out. Wedoff said that transferring the pension plans to the federal agency didn't violate any law or United's union contracts, and that reduced benefits were better than having the airline go under. "The least bad of the available choices here has got to be the one that keeps an airline functioning, that keeps employees being paid," Wedoff said. United, based in suburban Chicago, is the busiest airline at the Los Angeles and San Francisco airports, and about 4,000 of its 61,000 active employees live in California, along with thousands of United retirees. United has lost nearly $10 billion since the Sept. 11, 2001, terrorist attacks, including $1.6 billion in 2004. The carrier, like many other older so-called legacy airlines, has been hurt by soaring fuel costs, widespread fare cutting, relatively high operating costs and the growth of low-cost discount airlines such as Southwest Airlines and JetBlue Airways. It filed for Chapter 11 bankruptcy protection in December 2002. United's unions say that missteps by airline management over the last several years also are to blame, and that they've been asked to make excessively steep concessions. But United Chief Executive Glenn Tilton — a former oil industry executive who took United's helm in September 2002 — has pushed hard for the labor concessions and the pension plan switch, saying they're the only way the airline can climb out of bankruptcy. Jake Brace, the airline's chief financial officer, said Wedoff's ruling was "not a good outcome [but] it's unfortunately a necessary outcome. This is not in any way a joyous day." United and the PBGC announced their pension plan agreement April 22. The airline said it needed to shed the plans to save more than $4 billion in payments over the next six years and secure the capital it needs to leave Chapter 11 protection. But the pact has outraged some United unions, and the airline's employee situation "has become extraordinarily volatile," said Ron Kuhlmann, vice president of Unisys R2A Transportation Management Consultants in Oakland. The Assn. of Flight Attendants has threatened random, unannounced strikes against United flights if the pension plans were transferred. The association represents about 15,500 United flight attendants. United warned them last week that they could be fired if they walked off the job. Association spokeswoman Dianne Tamuk said, "We feel sold out" by the ruling, and said that the union would meet to decide its next step. "A strike is a real prospect if that agreement is approved," Jack Carriglio, a lawyer for retired United pilots, said at the hearing. "Also, this will have a grave impact on United employees' morale." Under federal pension law, the PBGC pays no more than $45,613 a year to a worker who retires at age 65; it's less for those retiring at an earlier age. As a result, United's pilots are expected to take the greatest hit to their pension benefits. They commonly earn six-figure salaries while working, but under federal law they must retire at age 60. Moreover, United and most of its union employees have another battle to wage. United also is asking Wedoff to throw out the airline's wage-and-benefit contracts with most of its employee groups, so it can secure the more than $3 billion in annual labor savings — aside from the pension costs — that United says it needs to survive. A hearing on that request begins today, and some United employees have threatened to walk out if the carrier wins that contest as well. They include 19,500 ramp workers and other ground employees represented by the International Assn. of Machinists, which was scheduled to release the results of a strike vote before today's hearing. Machinists union spokesman Joe Tiberi said the union would appeal Wedoff's ruling and try to negotiate a settlement with United. But if those efforts fail, he said, "we will be guided by the results of our strike vote." Among United's unionized work groups, only its 6,450 active pilots, led by the Air Line Pilots Assn. union, have reached new wage and pension agreements with the airline outside of court. But United's retired pilots have no such deal, and they also objected to the pension plan transfer to the PBGC. There are fears that other big legacy airlines such as American, Delta and Northwest may now try to terminate their plans, though none has yet indicated plans to do so. The airlines instead are pushing for new federal laws that would enable them to extend their pension payments over a longer period of time. But US Airways, a smaller carrier that, like United, is operating under Bankruptcy Court protection, did shift its pension plans to the PBGC in February. In a sign of the industry's continuing distress, Delta warned Tuesday that it expected to suffer large losses for the rest of 2005 and might need to file for bankruptcy protection. The pension insurer itself is also hurting, its troubles compounded by the airline industry. The United claim by far exceeds the previous record claim assumed by the agency, a $3.6-billion liability from Bethlehem Steel Corp. in 2003. The quasi-governmental agency — which is funded by employer-paid premiums, investment income and assets from failed pension plans — had a deficit of $23 billion as of Sept. 30. The PBGC's United liability was softened somewhat by its agreement with the airline, which calls for United to give the agency $1.5 billion in securities in exchange for the PBGC assuming its pension plans. United ranked No. 1 at Los Angeles International Airport in terms of passengers served in the first quarter, but it isn't dominant there, with a market share of just 15.3%. Also, American passed United in domestic passengers in March for the first time ever at LAX. United has been trimming its service at the airport, sinking from 98 daily domestic departures a year ago to 86 now. United also has daily flights to seven international destinations from LAX. United, the primary unit of UAL Corp., has a much bigger presence at San Francisco International, where it accounts for about half the airport's traffic and is the No. 1 carrier in terms of both domestic and international passengers. * (BEGIN TEXT OF INFOBOX) Billion-dollar deficits United Airlines' pension plans to be taken over by the Pension Benefit Guaranty Corp.:
* Both active workers and retirees Associated Press was used in compiling this report.
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