This is going to be sticky. Anyone know what the status of the proposed legislation before congress?
Because of the sensitivity of this issue - I ask for UA Employees and Customers only.
(Reuters) — United Airlines, seeking ways to ease a huge pension burden before emerging from bankruptcy, faces several unpleasant options, including, as a last resort, terminating the plans, according to industry analysts and sources familiar with the issue.
In a recent regulatory filing, United said $4.2 billion in cash contributions to pensions were required over five years. Its underfunded liability, an accounting figure, is estimated at more than that, by some figures in the $6 billion to $7 billion range. That is a staggering sum for any company but especially one trying to get back on profitable footing.
United, the world's second largest airline and a unit of UAL Corp., filed the largest ever aviation bankruptcy in December 2002.
``The challenge with exit financing is the amount of cash flow to pension plans, especially in the early years of the business plan,'' Chief Financial Officer Jake Brace said in an interview.
Bill Warlick, senior airline analyst at Fitch Ratings, said United might try a variety of options used by other companies.
One is to ask the Internal Revenue Service for waivers on contributions for a one-year period, he said. Another is to continue to press for legislation that changes pension funding rules. A third is to ask unions to reopen pension discussions and perhaps change formulas that determine contributions. Finally, United may simply ask the bankruptcy court to terminate the plans.
Given the complexity of the issue, Warlick said it was likely some combination might ultimately be used. ``I don't think any of them would be seen as a sure thing.''
FRONT-LOADING PAYMENTS
Brace said one of the main issues with United's pensions revolves around what are known as deficit reduction contributions — a type of penalty that must be paid when the plans fall below a certain level of funding.
United is pushing Congress for changes to pension funding laws, particularly regarding the deficit reduction contributions, which have the effect of front-loading the financial burden.
Pension problems — one of several lingering issues in the complicated bankruptcy — exist despite sacrifices already made by employees in recent wage concession agreements.
The Air Line Pilots Association, for example, agreed to changes in the pension formula and to cap years of eligible service. Pilots said their changes result in savings of $1.5 billion over the term of the union contract.
``We already gave blood at that bank,'' said Paul Whiteford, head of the ALPA branch at United, when asked if the pilots would consider additional concessions.
BANKRUPTCY CODE PROVISION
Another option no one wants to see evolve — but which is usable as a last resort — is a return to section 1113 of the bankruptcy code to allow United to reject its union contracts.
Unlike smaller rival US Airways Corp., which had the bulk of its liability in its pilots' plan and eventually terminated it, United has four pension plans: one for pilots; one for flight attendants; one for union ground employees; and one for management and salaried workers plus public contact workers like airport and reservation staff. The degree each is under-funded is somewhat evenly spread out, according to a source familiar with the plans.
But Brace agreed that no one solution was likely, as happened in US Airways. ``It's not to be any single answer, it's going to be some of this, some of that.''
Because of the sensitivity of this issue - I ask for UA Employees and Customers only.
(Reuters) — United Airlines, seeking ways to ease a huge pension burden before emerging from bankruptcy, faces several unpleasant options, including, as a last resort, terminating the plans, according to industry analysts and sources familiar with the issue.
In a recent regulatory filing, United said $4.2 billion in cash contributions to pensions were required over five years. Its underfunded liability, an accounting figure, is estimated at more than that, by some figures in the $6 billion to $7 billion range. That is a staggering sum for any company but especially one trying to get back on profitable footing.
United, the world's second largest airline and a unit of UAL Corp., filed the largest ever aviation bankruptcy in December 2002.
``The challenge with exit financing is the amount of cash flow to pension plans, especially in the early years of the business plan,'' Chief Financial Officer Jake Brace said in an interview.
Bill Warlick, senior airline analyst at Fitch Ratings, said United might try a variety of options used by other companies.
One is to ask the Internal Revenue Service for waivers on contributions for a one-year period, he said. Another is to continue to press for legislation that changes pension funding rules. A third is to ask unions to reopen pension discussions and perhaps change formulas that determine contributions. Finally, United may simply ask the bankruptcy court to terminate the plans.
Given the complexity of the issue, Warlick said it was likely some combination might ultimately be used. ``I don't think any of them would be seen as a sure thing.''
FRONT-LOADING PAYMENTS
Brace said one of the main issues with United's pensions revolves around what are known as deficit reduction contributions — a type of penalty that must be paid when the plans fall below a certain level of funding.
United is pushing Congress for changes to pension funding laws, particularly regarding the deficit reduction contributions, which have the effect of front-loading the financial burden.
Pension problems — one of several lingering issues in the complicated bankruptcy — exist despite sacrifices already made by employees in recent wage concession agreements.
The Air Line Pilots Association, for example, agreed to changes in the pension formula and to cap years of eligible service. Pilots said their changes result in savings of $1.5 billion over the term of the union contract.
``We already gave blood at that bank,'' said Paul Whiteford, head of the ALPA branch at United, when asked if the pilots would consider additional concessions.
BANKRUPTCY CODE PROVISION
Another option no one wants to see evolve — but which is usable as a last resort — is a return to section 1113 of the bankruptcy code to allow United to reject its union contracts.
Unlike smaller rival US Airways Corp., which had the bulk of its liability in its pilots' plan and eventually terminated it, United has four pension plans: one for pilots; one for flight attendants; one for union ground employees; and one for management and salaried workers plus public contact workers like airport and reservation staff. The degree each is under-funded is somewhat evenly spread out, according to a source familiar with the plans.
But Brace agreed that no one solution was likely, as happened in US Airways. ``It's not to be any single answer, it's going to be some of this, some of that.''
