United `likely' to end pensions

Move is needed to avoid bankruptcy, carrier says

Judge to hear matter today

August 20, 2004|By Melissa Allison | Melissa Allison,CHICAGO TRIBUNE

For the first time, United Airlines has acknowledged that it is "likely" to terminate its pension plans, a move the carrier said it needs to attract financing to emerge from bankruptcy.

A bankruptcy judge in Chicago is scheduled to hear the matter today.

The judge also will hear United's plea that the International Association of Machinists and Aerospace Workers, one of the unions that represents the airline's workers, should not be allowed to sue three of the company's top executives in other courts for stopping the pension contributions.

United's unions and the agency that insures pensions have attacked the airline for stopping pension payments, objecting in court filings to a new financing package that does not allow for such payments. The airline said it did not make the payments part of the business plan it presented to financiers for the $1 billion package.

If United terminates its plans, the debt-laden Pension Benefit Guaranty Corp. figures it would be responsible for $6.4 billion of the underfunded portion, far more than its record $3.6 billion in liability for Bethlehem Steel's terminated pension plans.

The PBGC, a quasi-governmental agency, has said it is concerned that other carriers swamp the system by terminating their pension plans to remain competitive.

In recent weeks, union leaders have called for new management, saying the pension issue has shattered their trust in Chief Executive Officer Glenn Tilton and his team.

The Association of Flight Attendants has asked members for a vote of no confidence in management, and said yesterday it learned that Tilton received a pay raise for a few months this year - amounting to about $27,000 - at a time when unions grudgingly agreed to cuts in retirees' benefits, believing he had stuck with an earlier pay cut.

"Tilton talks about having to make the tough decisions," the flight attendants' union said in a statement. "How `tough' was it for Tilton to take a raise while threatening to cut retiree health care?"

United says it cannot afford to make pension payments at a time when rising oil prices have added more than $1 billion to its costs this year, exacerbating the airline's shaky finances.

The airline, which filed for bankruptcy protection in December 2002, says repeatedly in its filing that it has not decided whether to terminate the plans.

But in one candid sentence, the carrier said that "the termination and replacement of all of United's defined benefit pension plans likely will be required."

The airline repeated that line in its daily voice mail update for employees yesterday.

It was the first time the airline has acknowledged the probability of terminating the plans, which it said it "worked hard to preserve ... even in the face of numerous critics who believed that pension termination was essential to United's survival."

The government's rejection of its bid for a $1.1 billion federal loan guarantee has forced United into its "present posture" regarding pensions, the filing said. Now the airline must find exit financing in the capital markets, which will have stricter requirements for money not backed by the government.

Ending and replacing the four pension plans probably will be necessary, "given the magnitude of the further cost reductions needed to create a viable business plan and attract exit financing," United said in a court filing Wednesday.

United's unions have said that they will make no more sacrifices. Workers have given up about $2.5 billion in wages and benefits, and labor leaders say they want United to cut more nonworker costs.

Joseph Tiberi, a spokesman for the machinists and aerospace workers union, said the airline's statement came as no surprise. "Every action United has taken over the past month has indicated their goal was to terminate pension plans," Tiberi said.

The IAM has sued Tilton and two other top United executives, saying they breached their duties to employees and other creditors by stopping pension payments.

The Chicago Tribune is a Tribune Publishing newspaper.

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