NEWS ANALYSIS
United's Pensions on Increasingly Shaky Ground
By MARY WILLIAMS WALSH
Published: July 2, 2004
s United Airlines prepares to ask workers for a new round of cutbacks, its pension plans look increasingly vulnerable. The airline has four big plans, and shedding any one could lop off more than $1 billion in debt.
Such a drastic step could nudge other airlines to trim their pension plans as well, to keep their labor costs competitive. The long-term prospect could be a series of failed pension plans and lost benefits reminiscent of those in the steel industry, a costly outcome for the government.
Which workers' pensions at United are most at risk? Those with the biggest pensions - the pilots - might not, in fact, be first in the cross hairs.
Because the pilots' fund had good returns during the stock market boom, it built a big reserve of credits for funding purposes. That cushion has allowed United, a unit of the UAL Corporation, to contribute less cash to that plan than to the others since entering bankruptcy, even though the pilots have been promised by far the most benefits.
The most recent data suggest that the pension plan for United's mechanics has been consuming the most cash in the last two years. United's plan for administrative workers and managers appears to have required the second-largest amount of cash, followed by the plan for flight attendants.
As long as this pattern continues, United could conserve more cash in the short term - and make itself more attractive to lenders - by chopping one or more of its skimpier pension plans. It could either freeze the benefits at their current level, or terminate one or more plans outright - a far more drastic step that would require approval by the bankruptcy court.
A termination would save the airline more money but also cause an uproar in the workplace. To minimize the backlash, United might start with the plan that has promised the smallest benefits - the flight attendants' plan - because government insurance would cover more of those promises. The flight attendants have already agreed to pension reductions, and they are bitter about a new plan to cut retiree health insurance. United might ease the pain by giving them other retirement benefits, like an enriched 401(k) plan.
United declined to discuss any aspect of its pension plans, and officials of the unions that represent its employees said the airline had not yet contacted them for discussions. Just a few weeks ago, United said in a bankruptcy court filing that it viewed its pension plans "as untouchable unless there was no other choice." But that was before the government denied loan guarantees to United. O. V. Delle-Femine, national director of the Aircraft Mechanics Fraternal Association, said he now feared the worst.
"You've got to gut the pension plans," he said. "I don't see any other way."
Whatever United does will be closely watched by the other major airlines and their employees, who have substantial pensions of their own to worry about. If United ultimately revives itself by terminating one or more of its pension plans, other airlines may also try to shed pension debt, to remain competitive.
This would not happen overnight. Pension terminations are difficult and costly. But over time, the industry could find itself in a long, slow race to the bottom - a succession of bankruptcies and pension defaults similar to those in the steel industry over the last quarter of a century. Steel maker after steel maker went bankrupt, and the only ones to bounce back were those that scuttled their pension plans.
In the process, the government had to take over $9.4 billion worth of pension obligations. Because pension insurance has limits, many steel workers had their benefits reduced.
A replay of those grim events in the aviation sector would be painful for airline employees, and ominous to workers in other mature industries, like automaking, where the pension obligations are also large and growing faster than revenues. And it would probably swamp the government's insurance program.
In May, the Pension Benefit Guaranty Corporation disclosed that it was beginning to stabilize after two years of losses, but it warned that it had just classified $23.4 billion worth of airline pensions as "reasonably possible" to default.
Amfa negotiated concessions for the retires and is now willing to get rid of your retirement while securing a retirement plan for himself during the last convention!
Is this what the Amfa wannabes want us to go to? You all better become educated before we are all sold down the street by these bunch of used car salesman!!!!!
United's Pensions on Increasingly Shaky Ground
By MARY WILLIAMS WALSH
Published: July 2, 2004
s United Airlines prepares to ask workers for a new round of cutbacks, its pension plans look increasingly vulnerable. The airline has four big plans, and shedding any one could lop off more than $1 billion in debt.
Such a drastic step could nudge other airlines to trim their pension plans as well, to keep their labor costs competitive. The long-term prospect could be a series of failed pension plans and lost benefits reminiscent of those in the steel industry, a costly outcome for the government.
Which workers' pensions at United are most at risk? Those with the biggest pensions - the pilots - might not, in fact, be first in the cross hairs.
Because the pilots' fund had good returns during the stock market boom, it built a big reserve of credits for funding purposes. That cushion has allowed United, a unit of the UAL Corporation, to contribute less cash to that plan than to the others since entering bankruptcy, even though the pilots have been promised by far the most benefits.
The most recent data suggest that the pension plan for United's mechanics has been consuming the most cash in the last two years. United's plan for administrative workers and managers appears to have required the second-largest amount of cash, followed by the plan for flight attendants.
As long as this pattern continues, United could conserve more cash in the short term - and make itself more attractive to lenders - by chopping one or more of its skimpier pension plans. It could either freeze the benefits at their current level, or terminate one or more plans outright - a far more drastic step that would require approval by the bankruptcy court.
A termination would save the airline more money but also cause an uproar in the workplace. To minimize the backlash, United might start with the plan that has promised the smallest benefits - the flight attendants' plan - because government insurance would cover more of those promises. The flight attendants have already agreed to pension reductions, and they are bitter about a new plan to cut retiree health insurance. United might ease the pain by giving them other retirement benefits, like an enriched 401(k) plan.
United declined to discuss any aspect of its pension plans, and officials of the unions that represent its employees said the airline had not yet contacted them for discussions. Just a few weeks ago, United said in a bankruptcy court filing that it viewed its pension plans "as untouchable unless there was no other choice." But that was before the government denied loan guarantees to United. O. V. Delle-Femine, national director of the Aircraft Mechanics Fraternal Association, said he now feared the worst.
"You've got to gut the pension plans," he said. "I don't see any other way."
Whatever United does will be closely watched by the other major airlines and their employees, who have substantial pensions of their own to worry about. If United ultimately revives itself by terminating one or more of its pension plans, other airlines may also try to shed pension debt, to remain competitive.
This would not happen overnight. Pension terminations are difficult and costly. But over time, the industry could find itself in a long, slow race to the bottom - a succession of bankruptcies and pension defaults similar to those in the steel industry over the last quarter of a century. Steel maker after steel maker went bankrupt, and the only ones to bounce back were those that scuttled their pension plans.
In the process, the government had to take over $9.4 billion worth of pension obligations. Because pension insurance has limits, many steel workers had their benefits reduced.
A replay of those grim events in the aviation sector would be painful for airline employees, and ominous to workers in other mature industries, like automaking, where the pension obligations are also large and growing faster than revenues. And it would probably swamp the government's insurance program.
In May, the Pension Benefit Guaranty Corporation disclosed that it was beginning to stabilize after two years of losses, but it warned that it had just classified $23.4 billion worth of airline pensions as "reasonably possible" to default.
Amfa negotiated concessions for the retires and is now willing to get rid of your retirement while securing a retirement plan for himself during the last convention!
Is this what the Amfa wannabes want us to go to? You all better become educated before we are all sold down the street by these bunch of used car salesman!!!!!
