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United seeks to terminate its $8.3b pension plans
After two years of restructuring under bankruptcy protection, United Airlines informed its unions last night that it wanted to terminate its four employee pension plans and seek additional wage and benefit cuts, as part of a plan to cut another $2 billion a year in costs.
United has to convince the bankruptcy judge, who has the authority to set aside and modify existing labor contracts, that it had no other chance of survival.
If United terminates its pension plans, estimated at $8.3 billion, the US government pension agency would have to pick up most of the tab, reports The New York Times.
The government would be responsible for about $6.4 billion, the largest burden from a single company in the agency’s 30-year history.
United employees would lose the remaining $1.9 billion. The announcement infuriated United’s unions, as well as the federal pension agency.
Tax payers are likely to pick up the tab as the pension agency is already $9.7 billion short of the total it must pay retirees of companies whose plans have failed, and its shortfall has grown substantially in the last two years.
Airline industry analysts have warned that other airlines could follow suit, if United is able to terminate its plans.
A flurry of discussions are taking place in Washington over ways the plans could be saved, through Congressional or other action. The Air Line Pilots Association has been exploring options, as has the White House.
Along with terminating the pension plans, which United estimated would save roughly $700 million a year, the airline told its unions that it wanted to cut labour costs by about $725 million a year. That is on top of $2.5 billion in annual wage and benefit cuts that the unions granted in 2003.
United plans to offer employees a 401(k) programs, which cost companies a fraction of what they contribute to traditional retirement plans, saving up to $4 billion over the next five years.
Under its first full year in bankruptcy protection, United cut costs by $5 billion annually in 2003, including the cuts it obtained from unions.
Analysts say other airlines are likely to try similar moves if United is successful.
On Wednesday, American Airlines chief financial officer James Beer said his airline was looking to “stay abreast” of pension moves at United.
“We’re going to have to be fully competitive if we are going to be a successful organization,” Mr. Beer said.
Report by David Wilkening
David
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