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terpfan1980

Join Date 08/2004

+13

United Airlines walk away from pension debt$ on gov't $$

United will terminate pensions, leaving government to pick up responsibility

I hope everyone is ready for a large case of corporate welfare. Too bad that between mismanagement prior to 9-11-2001 and the major blow that was deal to United (and all Airlines) by 9-11 and the continuing travel slump for a good while after that United has lately also had to deal with increased fuel costs.

Even more sad, United Airlines has basically been forced into bankruptcy in an effort to collect even a little of the money that was set aside by Congress following 9-11 for airline and travel industry bail-outs. Because of strings on how that money could be awarded, airlines that were not healthy (United, US Air, etc.) were unable to get help they needed without resorting to drastic cuts in labor costs and other expenses. Those cuts in labor costs are actually jobs -- jobs for real people, who help to buy goods and services in the economy. Those cuts are also cuts for people that worked their lifetimes for United Airlines to earn a pension so they could retire comfortably. Now those pensions that were promised may be reduced or otherwise impacted by the extraordinary efforts that United is going through to try to save their airline.

Anyway, read on....

From MSNBC, original materials via Associated Press. Headline is linked.

The Associated Press
Updated: 8:43 p.m. ET May 10, 2005

United gets approval to shift pension plans

Decision clears way for biggest corporate-pension default ever

WARD

Photo credit: M. Spencer Green / AP
Richard Ward, a retired United Airlines captain of 31 years, leaves the federal courthouse during a lunch break on Tuesday. A bankruptcy judge approved the airline's bid to terminate its employees' pension plans.

CHICAGO - A federal bankruptcy judge approved United Airlines’ plan to terminate its employees’ pension plans on Tuesday, clearing the way for the largest corporate-pension default in American history.
The ruling, which carries broad implications for U.S. airlines and their workers, shifts responsibility for United’s four defined-benefit plans to the government’s pension agency.
That will save cash-strapped United an estimated $645 million a year, part of the $2 billion in annual savings it says it needs to line up enough financing to emerge from Chapter 11 bankruptcy as soon as this fall.
But the cost will be painful to its employees, who stand to lose thousands of dollars annually off their pensions when they are assumed by the Pension Benefit Guaranty Corp.
The PBGC, the government’s pension insurer, initially opposed United’s plan. But it agreed to drop that resistance last month in exchange for up to $1.5 billion in notes and convertible stock in a reorganized UAL Corp., United’s holding company.
United’s pensions are underfunded by an estimated $9.8 billion, of which the PBGC would guarantee only about $5 billion. The previous largest U.S. pension default was Bethlehem Steel’s $3.6 billion in underfunding in 2002.
Judge Eugene Wedoff said the settlement, while disputed, does not violate any law or United’s collective bargaining agreement and he noted that employees at companies such as United could end up with fewer or even no benefits if no arrangement is made and the company goes broke.
“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 Chief Financial Officer Jake Brace said the ruling is crucial for United to come out of bankruptcy.
“It’s not a good outcome. It’s unfortunately a necessary outcome,” he said. “This is not in any way a joyous day. It is an important step in our restructuring and in making our airline successful and viable for the long term.”
United’s controversial move risks provoking action by employees who already have agreed to sharp cuts. Unions have raised the possibility of striking if United dumps the pensions.
The Association of Flight Attendants, which threatened unspecified labor actions if the pensions were struck, will meet to decide its next step, said spokeswoman Dianne Tamuk.
“We feel sold out,” by the action, she said. Tamuk, 49, said her pension will be reduced from $1,700 a month to $800 a month by Wedoff’s ruling.
United’s effort to dump its pensions has been watched closely by the rest of the airline industry, where record fuel costs, the lowest fares since the early 1990s and stiff competition have caused network carriers to lose billions of dollars. Tuesday’s ruling, following a step taken successfully by US Airways Group Inc. in February, clears the way for similar actions elsewhere.
United’s biggest competitors would be under the most pressure to follow suit. American Airlines, the largest U.S. carrier and a unit of AMR Corp., has said it will keep its pension plans but is concerned about No. 2 United gaining a financial advantage with the elimination of its pensions.

... more at linked article

emphasis added

As noted in the original article, it seems that there will be no real winners here. The airlines industry is a mess. Labor costs got well out of hand for the larger airlines, and during the go-go 1990's internet and business boom, things were fine. But in the 2000's, especially in the post 9-11 world, things are not good. Add on top of that the rising fuel costs, and boom.

The unions are now sounding in many ways like their brethren and predecessors did when Eastern Airlines failed back in the 1980s, mad as hell and not ready to take it any more, but fool hearty enough to consider striking and perhaps putting the last nail in the coffin of their employers.

I don't know that there are any right answers or right choices here. As the judge noted, he's trying to make the choice that keeps the jobs going and keeps people working. I admire that, but I don't care for the idea that the government will now be bailing out the pension fund which was left woefully under-funded to begin with.

I do firmly believe that many individuals in the government and along the way at United Airlines (and their competitors) have screwed up royally in allowing that under-funding to ever take place. Many bean counters along the way should be enjoying hot sauna's in Hell for that. But the same thing has happened in many businesses along the way, some backed by the government, some not. Large retailers, Amtrak, Airlines, Manufacturers and many more. Hell, even the U.S. government has done the same thing with Social Security, under fund it now, and figure that in the future you can either fix it or abandon it over to the government or the tax-payers.

Anyway, it seems that you (fellow tax-payers) and I will be responsible for this one, at least financially, thanks to the deep pockets of the U.S. government.

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I saw this on the news earlier today. I just can't help but feel a little sad for the once mighty american airline industry. I fly about 100,000 + miles a year for work. So you could say that i have more than a passing interest in this particular subject.

There are numerous reasons for United's problems. Mismanagement, profit taking, fluxuating fuel prices, competition from smaller airlines, fare wars, 9-11 and the added costs created by it, and a flat recretional air travel market being the more well known factors. It's not the first time this has happened. And with Delta's recent teetering on the brink, i doubt it will be the last. The old guard airlines need to be re-structured. Unfortunately a lot of them are on such shaky financial ground they don't have the cash on hand to do it. Thus they rob Peter to pay Paul. Peter being the employees and Paul being the bankers.

I hope they get it together someday. I fly Delta primarily and like them a lot. I would hate to see such a fine airline go the route of TWA, Eastern, and other former giants of the industry.

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kingbee

Join Date 04/2004

+42

is united stock still controlled by its employees? during the 90s, i know it was the largest esop biz going. if so, this is even more troubling.

i've yet to be able to discover what happened to all the money that the first bush administration supposedly gave the airlines (reminds me of the billions committed but yet unspent to combat aids in africa). considering the airlines' commitment was one of the first manifestations of the adminstration's plan to undermine social programs by spending a couple generations into the ground, it appears more and more obvious bush hung around the carny shell game far more than anyone realized

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i've yet to be able to discover what happened to all the money that the first bush administration supposedly gave the airlines

Check my comments in-line above....

The money that supposedly was given to the air-lines came with so many strings attached that very little of the pool of money that was so widely touted as "billions in bail-outs" ever really was awarded to any of the airlines.

United and U.S. Airways both have been pushed into bankruptcy in efforts to get the money from the government that was "promised".

I am not particularly a fan of just spending good money after bad, but it seems to me that when several billions were supposed to have gone to the airlines to help them recover from 9-11, that the money should have gone to them, and not been so conditional that they'd never get it. Again, I'm sympathetic to the employees of these airlines and they were and are the ones most hurt during the shut-down of the airlines following 9-11, and the continued slow-down in travel that followed.

To this day, air travel is still way down compared to what it had been. Most airlines cut the numbers of flights by about 30%, and many have cut even more since then.

While I'm also a heartless bast@rd that thinks in many ways that people that are too stupid to see their employers going broke and then refuse to give back on some of the (generally) generous wages and compensation that they were being paid for their jobs, I can understand where those same employees obviously have a standard of life they are accustomed to, and they have financial needs that have to be met.

Again, no easy answers...

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I have been laid off twice in my career. The first time was very bitter, and I had already seen the writing on the wall (it was tanking bad) and so pulled my money out of the pension plan and rolled it over to an IRA. The second time was bittersweet as I also saw it coming, but bore, nor bear, any ill will towards the company. But since I was no longer a part of it, I pulled my money again.

IN both cases, I feel I was justified, and in the former, I would have lost it all. I would support a law that takes a pension plan out of the hands of the company creating it, and gives it to a blind trust. A promise is a promise, but if the company goes down the tube, then esops and company run pension plans are worthless. And some people have been counting on them for 30 years, only to be told at the time of retirement "sorry, we are broke". Or as in this case, hey Uncle Sam, you just got shafted.

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