CHICAGO, Jan. 3 (UPI) -- A decision by the Pension Benefit Guaranty Corp. to assume the retirement plan for United Airlines' pilots may fuel labor warfare with other unions trying to protect their benefits at the bankrupt No. 2 air carrier.
The PBGC is a quasi-government agency that insures traditional defined-benefit pensions of employees whose firms are in bankruptcy.
United stopped making contributions to all four of its traditional pension funds in July and later said it had to terminate the retirement programs to make itself attractive to investors so it can exit bankruptcy.
Management wants to replace the old-style pension plans with less expensive defined-contribution retirement programs like 401(k)s.
United sought protection from its creditors under the federal Chapter 11 bankruptcy law in December 2002 and had hoped to reorganize and emerge from bankruptcy in 2004 -- but that was not to be. Like the rest of the legacy U.S. air carriers, United was hit by soaring jet-fuel costs and competition from low-cost carriers like Southwest and JetBlue, the only U.S. airlines that finished 2004 in the black.
United Chief Executive Officer Glenn Tilton has said labor costs at United are too high for an industry that lost $8 billion.
The Air Line Pilots Association last month agreed not to oppose termination of its old-style defined-benefit retirement plan in exchange for a promise of $550 million in convertible securities that could be sold or swapped for new stock in the reorganized company.
Even after the latest wage cuts United pilots would be among the industry's best paid, according to the Times of London citing a study by University of Pennsylvania economist Michael Wachter.
The pilot's pension plan is underfunded by some $2.9 billion, according to the PBGC, but the Washington-based agency agreed last week to take on the plan now instead of in May -- when United plans to replace its remaining employee pension plans -- to save an estimated $140 million.
United's ALPA pension plan covers 14,000 active and retired pilots.
PBGC Executive Director Bradley Belt warned the deficit-riddled pension insurance agency may not be able to afford all of United's massive pension liability. The agency guaranteed $6.4 billion, which means significant cuts in benefit checks for higher-paid retirees.
Bradley indicated United might be able to afford three of its pension plans.
"Ideally, the company would maintain all four of its pension plans and honor fully the promises it has made to its employees," Belt said. "However, in conjunction with the company's bankruptcy proceeding, PBGC's financial advisers have come to the conclusion that United Airlines can afford at most only three of its pension plans."
The six so-called legacy air carriers -- United, American Airlines, Continental, Delta, Northwest and US Airways -- are entering a fifth year of troubles that began before the Sept. 11, 2001, hijackings.
Travel is rebounding, but aviation-industry experts estimate U.S. commercial airlines will lose as much as $4.5 billion in this year.
PBGC reported a deficit of $23.3 billion in fiscal 2004, more than double the $11.2 billion deficit in fiscal 2003, largely because it has assumed airline-industry pension plans that account for nearly 20 percent of total claims.
United's pension plans are underfunded by an estimated $8.4 billion. That would be the third-largest claim in the agency's 30-year history.
Federal Bankruptcy Judge Eugene Wedoff is expected to rule on the termination of the pilot's pension plan at a Friday court hearing in Chicago.
"The PBGC's decision to seek involuntary termination of United's defined benefit pension plan for our pilots changes nothing with respect to our need to terminate and replace all four of our defined benefit pension plans," United said in a statement. "As we have stated previously, even beyond termination and replacement of the four plans, we must achieve an additional $725 million in labor cost savings to successfully emerge from bankruptcy as a sustainable, profitable enterprise."
United pledged to negotiate with its other unions "in good faith," but the troubled air carrier faces a tough fight from flight attendants, ramp workers and customer-service agents who say they have already given back all the wage and benefit concessions they can.
Eighty-eight percent of United's flight attendants voted to authorize targeted strikes should the bankruptcy court permit United to abrogate its contract.
"United flight attendants have spoken loudly and clearly: They will not allow their employer to exploit the bankruptcy process and strip them of their rights. They are ready to fight," said Greg Davidowich, president of the Association of Flight Attendants Master Executive Council at United.
With 46,000 flight attendants, AFA plans to conduct targeted intermittent strikes it calls CHAOS -- Create Havoc Around Our System -- which are intended to have maximum impact on the airlines.
CHAOS strikes could make United's terminals, gates and baggage claims resemble what happened to passengers who flew US Airways and Comair during Christmas weekend. US Airways was unable to handle a flood of luggage during a snowstorm, and a computer failure completely shut down Comair, stranding thousands of travelers.
AFA says flight attendants at United have sacrificed enough. After the latest proposed concessions new flight attendants at United will be among the lowest paid.
"United flight attendants have already made huge sacrifices to help our airline succeed," Davidowich said. "But it's not just up to the employees to save United. It's time for United management to look at itself for a solution to the current situation it has created. United's problems are not a result of high labor costs, but of failed business planning."
Some analysts predict an industry shakeout in 2005, with US Airways the most vulnerable after filing bankruptcy a second time in October. Liquidation of one or more carriers would reduce the number of seats and open the window for higher fares.
US Airway's Christmas meltdown was because of bad weather and an unprecedented number employees calling in sick. More than 300 flight attendants didn't show up for work, and sick calls by baggage handlers were triple the usual level, although unions denied any organized job action. Nearly 400 flights were canceled and 10,000 bags misplaced.
US Airways executives volunteered to join workers to serve coffee, dispense flight information and even handle bags at Philadelphia International Airport over New Year's weekend, and there was no repeat of the public-relations debacle.
US Airways must get ground workers and mechanics to agree to more concessions by Thursday or a bankruptcy judge may impose pay and benefit cuts and impose new work rules, and the airline faces a $100 million cash payment to General Electric Co., one of its largest lenders, Jan. 14.
American Airlines held off bankruptcy last year by cutting $2.2 billion in costs and now charges passengers for in-flight sandwiches and snacks in coach. Delta Air Lines is simplifying its fare structure to compete with discount airlines and is expected to cut another 7,000 jobs on top of the 16,000 it has cut since 2001.
Northwest pilots accepted a 15-percent pay cut last year, and pilots at Delta took a 32.5-percent pay cut.
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