The International Association of Machinists and Aerospace Workers sued three top United Airlines executives yesterday, saying their decision to stop funding pension plans violates their responsibility to employees.
The airline, meanwhile, released financial figures for the second quarter showing that, although it is still losing money, it sharply cut its losses compared with the corresponding period a year ago.
Last week, United announced it would not make any payments to its underfunded pension plans while it remains in Chapter 11 bankruptcy. The airline said that agreements with its lenders prevented it from paying its pension obligations.
The Machinists union responded by suing chief executive Glenn Tilton, Chief Financial Officer Frederic Brace and Chief Operating Officer Peter McDonald in U.S. District Court in Chicago.
"United Airlines must get the message that they cannot abandon employee benefits at will," said District 141 President Randy Canale. "They will not be allowed to continue their slash-and-burn approach to restructuring without realizing serious consequences."
United said the lawsuit is without merit.
"We believe the claims are baseless," said spokeswoman Jean Medina. "It is unfortunate the IAM has decided to personalize this by naming these officers personally when it was a corporate decision."
The federal lawsuit accuses the three executives of violating their fiduciary duty to employees and retirees. The union represents 37,000 current and retired United workers.
If United's pension plans fail, they would be taken over by the quasi-governmental Pension Benefit Guarantee Corp., which guarantees pension payments but limits how much individuals can receive.
Gary Pastorius, a spokesman for the agency, said United executives and agency officials discussed the situation yesterday. Pastorius said the agency would guarantee about $5 billion of the pension plans. They are underfunded by about $7.5 billion.
"It would be the largest" pension failure in the nation's history, Pastorius said. The Bethlehem Steel pension collapse, at $3.7 billion, is now the largest.
Lawyers said it is unclear how much success the union will have with the lawsuit, because bankruptcy courts can set aside union contracts if they choose. But United also is under pressure from the pension agency to meet its funding obligations and must preserve the morale of its work force if it is to improve service.
"It's impossible to predict the success of this kind of lawsuit," said Eric Brunstad Jr., vice chairman of the American Bar Association's bankruptcy committee.
Brunstad said that while Tilton may have a fiduciary duty to his employees, he has similar legal responsibilities for creditors and others involved in United's bankruptcy.
Also yesterday, United reported a net loss of $247 million in the quarter that ended June 30, a significant improvement over the $623 million loss in the corresponding period a year ago.
"They are definitely making progress," said Philip Baggaley, an airline analyst with Standard & Poor's. "Their labor costs have been reduced, and they are ... benefiting from stronger revenues, particularly in the Pacific."
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