The nation's pension insurer agreed Friday to take over all four of the underfunded pension plans at UAL Corp.'s United Airlines and assume $6.6 billion of the plans' net liabilities -- the largest such transfer of obligations in the federal agency's 31-year history.
The move by the Pension Benefit Guaranty Corp. was a victory for United, which had sought to escape the plans' financial burden by turning them over to the agency.
United says it needs to shed its pension obligations as part of its plan to emerge from Chapter 11 bankruptcy protection, which also includes extracting more wage cuts from its 61,000 current employees.
"It will allow the company to move forward as a sustainable, competitive enterprise for the long term," United said of the agency's decision.
The pension plans cover 121,500 active and retired workers, and United's agreement to shift the plans to the agency fueled talk of strikes against the carrier by one or more of the company's employee unions.
"We are outraged by this avoidable action and will oppose it forcefully in the courts and on the streets," Greg Davidowitch, head of the United chapter of the Assn. of Flight Attendants, said in a statement.
United's 15,500 flight attendants had threatened to strike over the pay cuts United sought, then reached a tentative, concessionary contract in January. But that pact fell apart this month.
The unions for more than 25,000 United mechanics and other ground workers also are threatening to walk out.
"If we can't resolve pensions and other issues ... we are prepared to strike United Airlines," said Joe Tiberi, a spokesman for the International Assn. of Machinists, which represents about 19,500 United ramp workers and other ground employees.
The machinists union is taking a strike vote beginning May 3, with the results expected May 10 -- one day before a Bankruptcy Court hearing starts on United's plea to have wage and benefit concessions imposed on the workers if they can't reach agreement before then.
United's deal with the agency remains subject to approval by Bankruptcy Judge Eugene Wedoff in Chicago, who is overseeing the reorganization of United and its parent, UAL Corp.
The proposed pension handover, which initially was resisted by the agency, is causing concern among United workers and retirees that their retirement benefits could be reduced because of legal caps on how much the agency can pay out.
Under federal pension laws, the agency can pay 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.
United's pilots are expected to take the greatest hit to their pension benefits. They commonly earn six figures a year, and under federal law they must retire at age 60.
"I can definitely say this is not good," said William Stewart, 68, a retired United pilot in Mission Viejo. "The fact that they [United] don't think it's convenient to keep paying seems to me immoral and unethical, if not illegal."
The pension insurer said United's four plans combined were underfunded by $9.8 billion. The agency's liability -- based on the benefits it had guaranteed -- is $6.6 billion.
United says it can't afford to keep making payments to its pension plans. The payments would total $1.3 billion this year and $4.4 billion over the next six years, the airline said in a court filing earlier this month.
But for the pension insurer, assuming United's plans deepens its own financial woes, which have been compounded by the airline industry's troubles. Indeed, the United claim by far exceeds the prior record claim assumed by the agency -- a $3.6-billion liability from Bethlehem Steel Corp.
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. That deficit, the amount by which its pension liabilities exceeded its assets, included estimated losses from taking over plans at United and US Airways Group Inc. In February, the agency assumed the US Airways plans and $2.3 billion of their $3-billion net liabilities.
With United, the agency wanted to act now rather than risk having the bankruptcy judge foist the plans on the agency at a later date. That eliminated the possibility that the insurer's liabilities would grow in the meantime, the agency argued.
On that basis, the agency earlier had moved to take over the pilots' pension plan. The latest pact covers all of United's plans.
In a statement issued by the agency, its executive director, Bradley Belt, said it had an obligation to reduce its losses. "By reaching a settlement now we further that goal," he said.
United, based in Elk Grove Village, Ill., is the nation's second-largest airline. It's also the busiest airline at the Los Angeles and San Francisco airports, and about 4,000 of its active workers live in California, along with thousands of United retirees.
The airline filed for Chapter 11 in December 2002. United has lost nearly $10 billion since the Sept. 11, 2001, terrorist attacks, including $1.6 billion last year. Soaring fuel costs, widespread fare cutting and relatively high operating costs have all hurt the carrier, but its unions say management missteps also have contributed to its troubles.
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United Airlines' pensions to be taken over by the Pension Benefit Guaranty Corp.:
*--* Promised Employees Number of Assets benefits Covered participants* (in billions) (In billions) Pilots 14,100 $2.8 $5.7 Ground employees 36,100 1.3 4.0 Flight attendants 28,600 1.4 3.3 Mgmt, admin workers 42,700 1.5 3.8
Source: Pension Benefit Guaranty Corp.* Both active workers and retirees.
Los Angeles Times