Hold on to your -B- Plan because UAL is coming for it...

[ualflynhi]

Mayday for pensions?

Fate is up in the air for United workers'' retirement plans

By David Kesmodel, Rocky Mountain News
July 5, 2003

As United Airlines strives to return to financial health, it must
tackle a problem near and dear to its workers'' hearts: a towering
pension shortfall.

The giant carrier''s pension plans were underfunded by $6.3 billion at the end of
2002, the largest deficit in the beleaguered U.S. airline industry.

The shortfall means UAL Corp.''s United, flying under bankruptcy protection, will
need to dedicate huge amounts of cash to its plans in coming years.

Executives must draft a reorganization strategy that will generate enough cash flow
to meet future obligations. If they can''t find a recipe that works and that also
attracts bankruptcy-exit financing, United might seek to terminate some of its
pension trusts, analysts said.

US Airways killed its pilots'' plan before emerging from Chapter 11 on March 31,
turning over pension liabilities to the Pension Benefit Guaranty Corp., a federal
agency that assumes only some of the obligations of failed plans.

It''s very much a possibility that United will follow in US Airways'' path, said Ray
Neidl, an analyst at Blaylock & Partners in New York. The pension deficit could be
one of the obstacles to getting out of bankruptcy.

The fate of United''s pension plans will depend on two things: how revenues perform
and what their (bankruptcy-exit) financiers are willing to do as far as pledging
money to cover the pension underfunding, said Bob Mann, an industry consultant in
Port Washington, N.Y. In general, people funding reorganization plans don''t like to
pay old bills.

As part of its effort to obtain exit financing, the Chicago-based carrier plans to seek
a $1.8 billion loan guarantee from the federal Air Transportation Stabilization Board.
The panel rejected a previous request Dec. 4, prompting UAL''s bankruptcy filing. It
cited United''s pension problem as a substantial concern.

United spokesman Rich Nelson said in a statement that the airline will make a
decision on how best to proceed on the pension issue when it is further along in the
restructuring process.

It is essential that our business plan enable us to generate enough cash to pay for
the debt and other obligations, including pension funding, we have when we emerge,
he said.

We are assessing the level of liabilities our cash flow will be able to support on exit
and the options we have for making the necessary reductions.

In April, Denver International Airport''s dominant airline won $2.56 billion in annual
wage and benefit cuts that took effect May 1. The concessions, which run for six
years, include reduced pension benefits, lowering United''s future obligations to
workers. But United won''t give details on how much the savings are worth.

Before the new contracts were signed, United estimated in a federal filing that it
could be required to contribute a staggering $5.5 billion to its pension plans over
the next few years.

Estimates of future obligations, as well as deficits, take into account factors that
are subject to change, such as interest rate levels, regulatory requirements for
funding and the performance of investments in the financial markets.

The company has not come to us (to try to terminate) our pensions, and we''ve
made it very clear that it would be unacceptable for them to terminate any portion,
said Capt. Scottie Clark, a spokeswoman for United''s pilots union, the Air Line
Pilots Association.

Such a move, she warned, would cause a meltdown on this property.

The pilots union, United and other carriers have been lobbying Congress for relief on
funding requirements. One proposal is to excuse the airlines from making special,
accelerated payments that are required when pensions are less than 90 percent
funded for an extended period.

We want to cut slack in this area so companies have a better chance to achieve a
recovery or avoid bankruptcy, said John Mazor, a spokesman for the pilots union.

Spokesmen for United''s other major unions, the Machinists and the Association of
Flight Attendants, either declined comment or could not be reached.

The level of funding for each of United''s pension plans is unclear. United''s filings
with the Securities and Exchange Commission include only total statistics for its
plans.

Clark would not reveal the financial status of the pilots'' plan.

Following the termination of US Airways'' pilots'' plan, pilots expect to see their
pensions drop to between 30 percent and 70 percent of what they had expected,
according to The Wall Street Journal. The plan for 7,000 active or retired pilots was
underfunded by $2.5 billion when it was terminated.

A senior Colorado-based pilot for United said the US Airways situation was a
wake-up call for him. But we feel (the airline) now has huge savings in future
retirement contributions from the new labor contracts, said the pilot, who asked not
to be identified.

We feel we should be able to stay with the program.

The pilot said he decided to keep flying rather than retire this summer because he
felt his pension would be better protected if he stayed active.

Pilots also have another retirement plan - their so-called B plan - in which United
kicks in the equivalent of 9 percent of pilots'' pay each year. Other workers have
401(k) plans in addition to pensions.

The type of financing United is able to draw to emerge from Chapter 11 could
determine the future of the carrier''s pension plans.

United has been talking to potential debt and equity investors. An equity investor
might insist on terminating one or more of United''s pension plans, industry experts
said.

United is reportedly focusing on financing its emergence with a government-backed
loan and might try to avoid having an equity investor. A deterrent to having an
equity investor is that the investor likely would want some control of United''s
management.

But it''s unclear whether United would be able to finance an exit from Chapter 11
without an equity investor, experts said.

With or without an equity infusion, the pension problem is going to be both a factor
in the emergence from bankruptcy and (United''s) viability afterwards, said George
Hamlin, a consultant with Global Aviation Associates Ltd. in Washington, D.C.

United''s pension shortfall grew to $6.3 billion on Dec. 31 from $2.5 billion a year
earlier. As recently as 1999, United pension plans had a $1.3 billion surplus.

Pension funding in the airline industry - as well as other, older industries - suffered
in recent years from the weak economy and poor returns on stock-market
investments.

The five biggest U.S. carriers had a combined shortfall of more than $18 billion on
Dec. 31.

Frontier, Southwest and other low-cost carriers enjoy a competitive advantage
because they lack plans like those at United, American and other larger carriers,
Fitch Ratings analyst William Warlick said in a report earlier this year.

United in 2001 and 2002 used credits from overpayments in earlier years to meet
federal requirements for funding its pension plan. It has a remaining balance that it
could use this year.

Its contribution was $53 million in 2002 and $43 million in 2001. Those were down
from $230 million in 2000 and $175 million in 1999.

On Dec. 31, United had only 49.7 percent of its nearly $12.7 billion in pension
obligations funded.

 

[ua767fo]

The B Plan is kept out of UA''s hands and they cant touch it. The companies contribution is paid every payday. If they go after the A plan, there will be a melt down that makes summer 2000 look like a lovefest.

Unlike AAA, all of our retirement eggs are not in the same basket, a wise move by our MEC.

Denver, CO

 

[wts54]

Documents Disclose Wider Pension Deficit
By MARY WILLIAMS WALSH


nited Airlines'' pension difficulties may be significantly greater than the airline has disclosed to its investors and employees, according to documents filed in federal bankuptcy court.

The documents show that the total deficit of United''s four main domestic pension plans is $7.5 billion — at least $1 billion more than the deficit disclosed in a footnote in the company''s annual report. There, the airline reported a total pension deficit of just $6.3 billion.

The larger figure represents how much of a shortfall United would have if it terminated its major pension plans on April 15 and tried to use the assets of each plan to cover the benefits already earned by its workers. The figure in the annual report, calculated in a different way, is intended to show investors the total claims that United''s pension funds have on its operations.

The figures derived from the court documents — called "termination" pension deficits — are not normally disclosed to investors, the general public or workers. They became available only because United was in bankruptcy. The federal government, which insures pension plans, included the additional information when it asserted its claims as a creditor in May.

Last week, the Bush administration proposed that every company with a traditional pension plan make termination data available once a year. The proposal is scheduled to be the subject of a Congressional hearing today, along with related administration proposals to tighten pension financing rules and revise calculation methods.

A United spokesman said that the differences in the annual report and the government court filings merely reflected different measuring techniques and not a sharp deterioration in the airline''s pension plans. He declined to comment further.

In the past, companies have successfully fought to keep the additional information secret, saying termination data was irrelevant because they did not plan to terminate their pension plans.

Companies have also protested that the pension data could confuse and needlessly frighten workers and retirees. They even persuaded Congress to make the termination pension information exempt from the Freedom of Information Act in 1994. Though some additional data is kept by the Labor Department and is available to the public, it is usually at least two years old, and can suggest that plans are in good shape when they are not.

Pension advocates say that if the termination financing level of each pension plan were reported yearly, then employees, retirees and others would be able to gauge the health of their pension plans and press for additional financing if the plans seemed shaky.

Employees and retirees would also be able to use the data to figure out whether they risked losing benefits if their plans were to fail. The federal government insures pensions, but its coverage is limited, and a plan''s termination financing level is a key factor in whether a company''s retirees are fully covered or not. The greater the deficit at termination, the greater the likelihood that some employees will lose benefits.

When the pilots'' pension plan at US Airways was terminated in March, for example, it was only about 33 percent financed on a termination basis, with a deficit of about $2.5 billion. But the pilots had no way of knowing this and did not call for larger contributions or a more conservative investment strategy until it was too late. Many of them lost substantial benefits.

"While certain parts of the Bush pension proposal may be problematic for airlines, the one bright spot is the initiative to provide fuller disclosure," said John Mazor, a spokesman for the airline pilots association, which represents most of the nation''s airline pilots.

Of the pension plans at United, the pilots'' plan has the largest deficit, about $2.5 billion, according to the bankruptcy court documents. The deficit is the largest because the pilots'' plan has offered the richest benefits at United, as pilots'' plans do at other major airlines. The plan covered about 14,000 pilots, retired pilots and pilots'' widows at the end of 2000.

United''s ground employees — roughly 38,000 workers, retirees and spouses — face a pension shortfall of $1.9 billion, according to the bankruptcy court filings. The managerial and administrative workers'' plan had a shortfall of about $1.7 billion in April, and about 42,000 participants at the end of 2000.

The flight attendants'' pension plan had a deficit of about $1.4 billion, according to the court filing. That plan had about 27,000 participants at the end of 2000.

The accounting rules used to calculate the pension information in United''s annual report require all companies to combine their various employees'' pension plans into a single set of aggregate numbers, making it impossible to track individual plans.

These rules also ask accountants to "smooth" pension values from one year to the next. The rules, issued in 1985, have drawn criticism in recent years, as the financial condition of many pension plans has deteriorated.

Investors and employees rely on the information because it is usually the most recent available — but it also obscures the true state of individual pension plans at a given moment. The rules were written that way intentionally, in the belief that pensions are long-term obligations and their short-term fluctuations should not be allowed to creep into corporate financial reports.