United is told to get its act together

Judge tells airline to reach deal with creditors, unions or risk losing control


CHICAGO - A federal bankruptcy court judge gave United Airlines another 30 days yesterday to come up with a restructuring plan, but he warned the airline and its warring unions to cooperate on a solution or he would consider allowing alternative offers for United.

Judge Eugene R. Wedoff also approved a bankruptcy financing plan arranged by United in July after its bid for federal loan guarantees was rejected for the third time.

At the daylong hearing, there were intense and detailed exchanges among Wedoff, United's lawyers, and those for its unions and creditors, regarding the airline's intentions for its employee pension plans.

United said this week that it would most likely have to terminate its four employee pension plans and replace them with less-generous programs, blaming a shortage of cash. Such an action has never been taken by an airline, short of liquidation.

But United was more conciliatory yesterday, saying it hoped that it could salvage the plans and that even if they had to be replaced, workers would receive benefits like 401(k) retirement programs.

United's unions were not reassured, however, and bankruptcy experts said the company would probably replace the retirement plans before the airline returned to solvency.

Last month, United skipped a $72.4 million pension payment, due July 15, and subsequently said that it would not make any more pension contributions while it remains under bankruptcy protection.

It filed for bankruptcy in December 2002 and had hoped to use a package of loan guarantees as the basis for a restructuring. The rejection by the federal Air Transportation Stabilization Board on June 28 sent it scurrying to find alternative sources of cash.

Two of United's unions and the federal Pension Benefit Guaranty Corp., which oversees pension programs, filed objections to the debtor-in-possession financing that United lined up in July with Citibank, J.P. Morgan and the GE Capital Corp.

They contended that United had improperly promised to terminate its pension plans so that it could land the financing package, which would have favored lenders over employees.

United's lawyers said yesterday that the decision to halt pension contributions was made by management in early July and was not prompted by a request from the lenders.

The lead lawyer for United, James Sprayregen, said senior executives decided July 6 to skip the $72.4 million plan and announced the decision July 14.

Moreover, United based its business case for the debtor-in-possession financing on the assumption that it would not finance its pensions while it remained in bankruptcy, Sprayregen told Wedoff during an hour of sharp questioning.

"When we approached lenders, we did not include the pension contributions," Sprayregen said.

Told by the judge that the company's statements would be "reasonably interpreted to imply something else," Sprayregen said he was eager to correct that impression.

"It was unfortunate, and it should have not been taken that way," Sprayregen said.

The acknowledgment led Wedoff to deny motions by the Association of Flight Attendants, the Machinists union and the federal pension agency seeking a rejection of the financing package.

Wedoff also rejected a bid by pilots, flight attendants and the Machinists to end United's exclusive right to draft a restructuring plan. He said he was willing to give the airline another month to continue work on a plan, particularly because its creditors committee had pledged to spend the next 30 days working with the airline in drafting a proposal.

Rejection by the loan board had created a "very serious problem" for the airline, Wedoff said. He emphasized it was imperative that United work more closely with its unions and creditors, calling the next month a "test period."

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