Ax falls on United pensions
Judge OKs federal pact
By Kelly Yamanouchi, Staff Writer
Denver Post
Wednesday, May 11, 2005

Chicago - United Airlines received a judge's approval Tuesday to extinguish its pension plans in what would be the biggest corporate pension default in U.S. history.

The airline, which employs 6,000 people in Denver, called the decision a significant step toward getting out of Chapter 11 bankruptcy.  But employees voiced disappointment and frustration - and one union reiterated the threat of a strike.

Hundreds of people, including attorneys, flight attendants, retired pilots and others, packed two Chicago courtrooms where United asked U.S. Bankruptcy Judge Eugene Wedoff to approve an agreement with the U.S. Pension Benefit Guaranty Corp., the federal pension insurance agency.

The agreement is for United to terminate all four of its pension plans.  The pension agency would take them over, leading to a significant reduction in pension benefits for thousands of employees.

The judge's approval was a legal victory for United and the pension agency but a disappointment for workers and retirees.  The move puts pressure on other airlines to end their plans as well.  United's pensions are underfunded by $9.8 billion, of which the agency is guaranteeing only about half.

The largest previous default was Bethlehem Steel's $3.6 billion underfunding in 2002.

"We're prepared to do what we need to do to get rid of management," said Sara Nelson Dela Cruz, a spokeswoman for the Association of Flight Attendants at United.  A strike "is still a viable threat," she said.  "We have got to go back and meet with leadership and discuss our options."

United said the approval brings it a step closer to getting out of a more than two-year- long bankruptcy.

Still, United chief financial officer Jake Brace said, "this is not a good outcome.  It is, unfortunately, a necessary outcome."

"We were restructuring for the long-term success of United, and that was paramount in this case," Brace said.

The agreement involves United's pledging as much as $1.5 billion in notes to the pension insurance agency in exchange for the agency's taking on the liability.

Wedoff ruled that the pension agency could terminate the pension plans to protect its pension insurance system with United's approval, even if it violates provisions of labor contracts.

The Pension Benefit Guaranty Corp. carries a great responsibility to guarantee payment of defined pension benefits and "has to protect its system," Wedoff said.

Those opposing the agreement, including unions and some banks that are creditors in United's bankruptcy, said the agreement violates the law and does not treat other creditors fairly.

Wedoff said the settlement does not violate the law, and those opposing the agreement could take the pension agency to court if they feel the agency acted inappropriately.

"This settlement itself does not terminate the plans," Wedoff said. He also warned, "There is a great deal of work yet to be done to negotiate a fair outcome."

Brace, the United CFO, said the company would like to work with flight attendants on a replacement plan.

The judge told those in the courtroom and an overflow room to keep in mind that in a bankruptcy proceeding such as United's, "no one ever is able to come out with everything they would have had, had there not been a bankruptcy."

"Bankruptcy involves choosing the least bad in a number of unfortunate choices," Wedoff said.  The "least bad" in this situation must be one that keeps United in operation and keeps workers employed, he said.

But many in the courtroom were not comforted.

"The bankruptcy court has rewarded an ineffective management," said retired pilot Tom Kosik.

The court approval comes after the pilots, meteorologists and dispatchers unions already had agreed to allow the termination of their pension plans.

Shortly after the hearing ended, flight attendants gathered outside the courtroom and, although unhappy with the judge's ruling, applauded when their union's attorney Robert Clayman emerged.

"We're going to appeal," Clayman shouted to them.  "It's not over."

As United managers and attorneys left the courthouse grounds, flight attendants followed and chanted, "This management's gotta go."

United is set to return to court Wednesday seeking approval to throw out and replace labor contracts with its mechanics and machinists unions.

The company said Tuesday's ruling means it will not have to pursue its case against the flight attendants union for changes to its labor contract to allow termination of the flight attendant pension plan.

Staff writer Kelly Yamanouchi   can be reached at 303-820-1488 or kyamanouchi@denverpost.com.