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Judge lets UAL end pension plans
Employees to see big payment cuts in record default
By Associated Press | May 11, 2005
CHICAGO -- A bankruptcy judge yesterday approved United Airlines' plan to terminate its employees' pension plans, clearing the way for the largest corporate-pension default in US history.
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The ruling, which carries broad implications for US airlines and their workers, shifts responsibility for United's four ''defined-benefit" plans to the government's pension agency.
That will save cash-strapped United an estimated $645 million a year, part of the $2 billion in annual savings it says it needs to line up enough financing to emerge from Chapter 11 bankruptcy as soon as this fall.
But employees stand to lose thousands of dollars annually off their pensions when they are assumed by the government's Pension Benefit Guaranty Corp.
The PBGC initially opposed United's plan. But it agreed to drop that resistance in exchange for up to $1.5 billion in notes and convertible stock in a reorganized UAL Corp., United's holding company.
United's pensions are underfunded by an estimated $9.8 billion, of which the PBGC would guarantee only about $5 billion. The previous largest US pension default was Bethlehem Steel's $3.6 billion in underfunding in 2002.
Judge Eugene Wedoff said the settlement, while disputed, does not violate any law or United's collective bargaining agreement. He said employees could end up with fewer or even no benefits if no arrangement is made and the company goes broke.
''The least bad of the available choices here has got to be the one that keeps an airline functioning, that keeps employees being paid," Wedoff said.
United's chief financial officer, Jake Brace, said the ruling is crucial for United to come out of bankruptcy. ''It's not a good outcome. It's unfortunately a necessary outcome," he said.