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Reuters
UAL to Miss More Pension Payments
Friday July 23, 5:07 pm ET
By Meredith Grossman Dubner
CHICAGO (Reuters) - United Airlines said on Friday it plans no further pension payments this year, angering unions who fear the carrier could scrap their retirement plans altogether to lower costs and attract badly needed investors.
The No. 2 U.S. airline told a bankruptcy court judge that plans to hold off on a $404 million contribution in September and a $91 million contribution in October will give it more flexibility to manage its overall assets.
"It's a step to reduce our costs and attract the financing we're going to need to exit bankruptcy," Chief Financial Officer Jake Brace told reporters.
The company did not say when the payments would be made, but demoralized workers fear they will never get that money.
United, a unit of UAL Corp. (OTC BB:UALAQ.OB - News), deferred a $72 million pension payment last week, prompting speculation of deeper cuts.
"While United's action falls short of an outright termination of the pension plans, the company's actions make termination of the pension plans likely," Greg Davidowitch, president of the Association of Flight Attendants, said in a statement.
The International Association of Machinists said it was exploring legal action. "We want to know if United is trying to dump its pension obligations on U.S. taxpayers as another way to get the federal government to finance its bankruptcy following their failed bid to receive a loan guarantee," Robert Roach, IAM general vice president, said in a statement.
Separately, United told the bankruptcy court it had arranged an additional $500 million in debtor-in-possession financing to keep operations going during restructuring.
The airline, which has been in Chapter 11 since December 2002, has until June 30, 2005, to repay the loans. Lenders include General Electric Co's (NYSE:GE - News) GE Commercial Finance, J.P. Morgan Chase & Co. (NYSE:JPM - News), Citigroup Inc. (NYSE:C - News) and CIT Group Inc. (NYSE:CIT - News).
The company also received another 30-day extension to file its reorganization plan but said it will likely seek a "multi-month" extension in August.
United was denied a $1.1 billion government loan guarantee last month, forcing it to restructure plans for securing bankruptcy exit financing and putting immediate pressure on the Elk Grove, Illinois-based company to reduce ballooning pension costs.
United has four employee pension plans which now are underfunded by about $4.1 billion over the next five years.
"Because United's existing pension funding obligations will remain a huge financial burden after exit, it is incumbent on United to study all possible options and to determine whether United can sustain this burden and still attract exit financing," the company said in an update to the court on its reorganization.
Randy Clerihue, a spokesman for the Pension Benefit Guaranty Corp., the federal agency that insures corporate pensions, said it was rare for bankrupt companies that skip contributions to make up the shortfall.
"Obviously it heightens concern," Clerihue said. "It's not a foregone conclusion that plans terminate, but we don't often see those plans riding through without those shortfalls corrected."
US Airways (NasdaqNM:UAIR - News) terminated its pilots' pension to exit bankruptcy last year.
Airlines, particularly the biggest carriers, have been pressured by record high fuel prices and competition from low-cost carriers.
Brace told reporters United's fuel costs this year are now estimated to be $900 million more than projected. But he did not expect any major changes to the size or scope of United's route network.
UAL to Miss More Pension Payments
Friday July 23, 5:07 pm ET
By Meredith Grossman Dubner
CHICAGO (Reuters) - United Airlines said on Friday it plans no further pension payments this year, angering unions who fear the carrier could scrap their retirement plans altogether to lower costs and attract badly needed investors.
The No. 2 U.S. airline told a bankruptcy court judge that plans to hold off on a $404 million contribution in September and a $91 million contribution in October will give it more flexibility to manage its overall assets.
"It's a step to reduce our costs and attract the financing we're going to need to exit bankruptcy," Chief Financial Officer Jake Brace told reporters.
The company did not say when the payments would be made, but demoralized workers fear they will never get that money.
United, a unit of UAL Corp. (OTC BB:UALAQ.OB - News), deferred a $72 million pension payment last week, prompting speculation of deeper cuts.
"While United's action falls short of an outright termination of the pension plans, the company's actions make termination of the pension plans likely," Greg Davidowitch, president of the Association of Flight Attendants, said in a statement.
The International Association of Machinists said it was exploring legal action. "We want to know if United is trying to dump its pension obligations on U.S. taxpayers as another way to get the federal government to finance its bankruptcy following their failed bid to receive a loan guarantee," Robert Roach, IAM general vice president, said in a statement.
Separately, United told the bankruptcy court it had arranged an additional $500 million in debtor-in-possession financing to keep operations going during restructuring.
The airline, which has been in Chapter 11 since December 2002, has until June 30, 2005, to repay the loans. Lenders include General Electric Co's (NYSE:GE - News) GE Commercial Finance, J.P. Morgan Chase & Co. (NYSE:JPM - News), Citigroup Inc. (NYSE:C - News) and CIT Group Inc. (NYSE:CIT - News).
The company also received another 30-day extension to file its reorganization plan but said it will likely seek a "multi-month" extension in August.
United was denied a $1.1 billion government loan guarantee last month, forcing it to restructure plans for securing bankruptcy exit financing and putting immediate pressure on the Elk Grove, Illinois-based company to reduce ballooning pension costs.
United has four employee pension plans which now are underfunded by about $4.1 billion over the next five years.
"Because United's existing pension funding obligations will remain a huge financial burden after exit, it is incumbent on United to study all possible options and to determine whether United can sustain this burden and still attract exit financing," the company said in an update to the court on its reorganization.
Randy Clerihue, a spokesman for the Pension Benefit Guaranty Corp., the federal agency that insures corporate pensions, said it was rare for bankrupt companies that skip contributions to make up the shortfall.
"Obviously it heightens concern," Clerihue said. "It's not a foregone conclusion that plans terminate, but we don't often see those plans riding through without those shortfalls corrected."
US Airways (NasdaqNM:UAIR - News) terminated its pilots' pension to exit bankruptcy last year.
Airlines, particularly the biggest carriers, have been pressured by record high fuel prices and competition from low-cost carriers.
Brace told reporters United's fuel costs this year are now estimated to be $900 million more than projected. But he did not expect any major changes to the size or scope of United's route network.
