A bankruptcy judge Tuesday approved United Airlines' historic plan to dump its underfunded pension plans on a federal agency, a move United said it needed to survive but one that could trigger a damaging strike against the airline.
At a hearing in Chicago packed with scores of United employees and retirees, union officials and lawyers, U.S. Bankruptcy Judge Eugene Wedoff said United could shift all four of its major pension plans -- and their combined $6.6 billion of liabilities -- to the Pension Benefit Guaranty Corp.
The ruling clears the way for the largest corporate pension default in the 31-year history of the nation's pension insurer, and it added to the massive financial problems that the PBGC itself is grappling to contain.
United Airlines -- An article in Wednesday's Section A about United Airlines' pension plans said the air carrier had 4,000 active employees living in California. In fact, about 15,200 active United employees live in California.
The ruling fueled speculation that other major airlines -- which also are suffering huge losses -- might try to ditch their pension plans to avoid being at a competitive disadvantage to United, the second-largest U.S. carrier, behind American Airlines.
Wedoff's decision was an immediate blow to United's 121,500 active and retired employees, many of whom are likely to see their retirement checks reduced because federal pension laws cap how much the PBGC pays out.
Wedoff said that transferring the pension plans to the federal agency didn't violate any law or United's union contracts, and that reduced benefits were better than having the airline go under.
"The least bad of the available choices here has got to be the one that keeps an airline functioning, that keeps employees being paid," Wedoff said.
United, based in suburban Chicago, is the busiest airline at the Los Angeles and San Francisco airports, and about 4,000 of its 61,000 active employees live in California, along with thousands of United retirees.
United has lost nearly $10 billion since the Sept. 11, 2001, terrorist attacks, including $1.6 billion in 2004. The carrier, like many other older so-called legacy airlines, has been hurt by soaring fuel costs, widespread fare cutting, relatively high operating costs and the growth of low-cost discount airlines such as Southwest Airlines and JetBlue Airways. It filed for Chapter 11 bankruptcy protection in December 2002.
United's unions say that missteps by airline management over the last several years also are to blame, and that they've been asked to make excessively steep concessions.
